Let Me Explain Inflation: The Government Spending Part

Politicians are one of two things: stupid or malicious. They hide information that makes them look bad and don't actually fix underlying problems. Why?

Because our journalism isn't doing a good job explaining actual political concepts to Americans. Those who try to actually understand what's going on without buzzwords or plain-old bullshitting, typically have to run into dry academic papers or obscure congressional reports with overly-flowery language and obvious political bias. (Trust me, I know from experience).

This blog is here to fix that. Here is where you'll find step-by-step explanations on political issues that actually affect you, in Plain Language Land, so you'll actually understand what's going on this time.

Without further ado, let's get started. The issue we'll be focusing on today: the economy.

You're probably sick of rising prices on gas, groceries, sick of booming interest rates for homes, sick of the ever-rising tax rate that's making it really really hard to make those two ends meet.

All of them have one culprit: excessive government spending. This one problem creates all the other ones in a self-sustaining loop of the government going into we need more money mode. The first problem it creates: inflation.

Let’s say that we live in a hypothetical world where leather jackets are a prized commodity. If there’s two people wanting to buy the same leather jacket versus 2000, in which situation will the price of the leather jacket be higher? I bet you’re rolling my eyes at me, because it’s obviously the second, right?

You’d be surprised at how many people don’t see that the government is 500 of those people. The jacket analogy doesn’t just work for awesome leather jackets, it also applies to literally everything else you buy. While the government isn’t waltzing into your local grocery store and buying up food, it is paying people in its huge, overinflated bureaucracy, is cashing out on countless welfare programs (creating welfare dependency, another problem for another post), is giving out endless stimulus checks. Through all of these it makes sure that more people will be trying to buy all these products.

Subsidies cause the same problem. The effect of this is a bit harder to explain, so let’s look at a specific situation.

Example: Let’s say the government subsidizes a large travel infrastructure program. This infrastructure program competes with farms for raw materials, making it harder for farmers to produce their food. Farmers raise prices to account for this difficulty, and the price increase cascades down the chain to the grocery store you’re walking into after work.

This is called demand-pull inflation, for those trying to understand what the heck economists keep referencing.

If you’re using your brain (as you really should be), you probably have some form of these three arguments against me:

1. If the government shrinks its bureaucracy, those people will still be working somewhere and getting some money to spend, right? Demand would stay the same, right? Wrong. When someone works for the government, the government just borrows and/or prints more money to get the money to pay them. It basically has a bottomless hole of money it can just pull out of, meaning that it can both pay the employee and spend on its other programs. On the other hand, a hypothetical business with $100 to spend, $20 of which has to go to employee salaries, won't be able to spend another $100 on everything else: it can only spend $80. In this scenario, net demand stays the same and everyone is still able to buy everything they need.

2. Wouldn't I be able to use my government aid to pay for the price increase? No, because the dynamic of prices is supply-demand. If a company can only produce enough of a product for 100 people, making sure that 500 can afford the price increase doesn't change the fact that only 100 units exist. Products run out quicker.

3. Doesn't the government need to spend on everything it spends on? Wouldn't decreasing spending would make our lives worse? Actually, no, it wouldn't. Most government spending is actually absorbed by the bureaucracy it has to spend on; very little money actually directly goes to the problems it's meant to solve. Case in point: In the last 5 years, California spent $24 billion on solving the homelessness crisis, about $42,000 per homeless person. However, the homeless situation didn't improve at all, and the number of homeless individuals continues to grow. Where did this money go?! To the bureaucracy, obviously. And let's not forget that inflation makes it even harder for the homeless to restart their lives, meaning all of this spending only had a negative impact on them. While the government does have things it needs to spend on, current government spending has proven time and time again to be inefficient and inflation-causing.

So why do politicians advocate for it?

The answer is that telling Americans that "we're spending on solving all your problems" gives them positive vibes that can carry them through election season. The media never publishes coherent explanations, which is why this blog asks you to let me explain. Updates every Saturday!!