The exaggerated policy of inflation

Florida’s economy is booming, but in a good way.

For the first time in decades, the unemployment rate is below 4% – the normal figure before the pandemic. The “big quit,” probably best described as a “big shakeup,” has spawned a class of truly upwardly mobile young people who are in positions that raise their salaries and hourly wages to a reasonable level. The retirement of many during the crisis has opened up positions once held by people over 65 who have continued to work.

Immigration to Florida is at a gigantic new level. We have always been a magnet for opportunity and the current business climate is such that this effect is amplified to whole new levels. We have also remained the retreat of choice for non-residents, despite growing competition from other sunspots in the Sunbelt. The future is pretty rosy except for a crash due to rising inflation – a misguided alien invasion or a sudden paroxysm of vampire iguanas.

Since it always pays to be skeptical of the good times, let’s deal with them one at a time.

Inflation is associated with good times, usually in the financial community. Lots of cheap and loose dollars are up for grabs from loans, because interest rates are low and dollars are plentiful – so it’s fairly easy to acquire them. Since the bad debt “bubble” that contributed to the 2007-2009 recession, banks have been more cautious about lending, but cheap dollars mean cheaper loans. So at least part of the problem is there – raising interest rates will help alleviate it, but there is another problem – a problem in which the government may or may not have a role.

I’m not an economist (and TV won’t make me play one, or anything else – maybe I have a face for radio), but my friend Professor Alan Grant from l Baker University is. He notes with an ominous foreboding that “…this inflation is particularly troublesome because at least some of it comes from the supply side: supply chain disruptions and oil price shocks make expensive things without coming with the money to pay the extra cost. I guess businesses and financial markets will be happy to see this inflation in their rear-view mirrors.”

The problem, of course, is how to put it there?

The government has some tools, but it’s also faced with something like a statewide locust invasion when all you really control is your anthill. The issues we also face with inflation are global issues – currency fluctuation, investment financing, supply chain issues. These generally escape the powers of government since they encompass the international rather than the national universe.

US government control stops at the border for most of these operations. Oil, for example, is traded internationally – and there is no fixed price for crude – even though we have fractured from coast to coast until the earth itself- even opens, the price of the material is always an international price. The government may release some reserves in the hope of lowering local prices, but this tends to be a vain hope – mostly window dressing.

I also noted “ill-advised foreign invasion” as one of the challenges to a healthy economy – and that is also true. Since Russia invaded Ukraine, much of Europe and the United States have lobbied to stop buying Russian oil and natural gas. This creates an artificial scarcity that drives prices up based on the international market. The less there is of something, and the continued stability of demand for it, the higher the price will rise.

There are times when the government must act and other times when the government should sit back, shut up and let the market do its job.

We have high employment, higher wages and inflation. Unfortunately, the government can’t do much about it, and political tinkering will likely only make things worse.

If a welter of these iguanas shows up, though, I’ll be the first to call Tallahassee.

R. Bruce Anderson is Dr. Sarah D. and L. Kirk McKay, Jr. Endowed Chair in American History, Government, and Civics and Miller Distinguished Professor of Political Science at Florida Southern College. He is also a columnist for The Ledger and a political consultant and on-air commentator for WLKF Radio.

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