Occam's Razor

Sick of 7.5% inflation? Most of us are. Who likes paying higher grocery and gasoline prices? Who likes to see their rents go up twenty percent or more?

Well, some like it, but they tend to be corporations. One of the major causes of inflation is due to less competition in the marketplace. Before the pandemic there were a whole lot more retails stores out there than there used to be. Now they are harder to find and due to the pandemic we are buying more of our stuff online.

As a result e-tailers like Amazon are raising prices in general, but also on Amazon Prime. If you want to compare their prices with those at a local retailer, well, good luck because the local retailer is probably gone.

But some people like inflation. It gave me an excuse to raise my prices. I provide internet services from my home. It’s been four years since I changed my pricing. I don’t really need the money but my work is pretty steady and inflation makes it worth less every year. So I upped my prices about twenty percent in general. So far I haven’t seen customers go elsewhere, in part because there’s not a whole lot of people who can provide the unique services that I provide. Supply and demand, baby!

Two houses in my pretty upscale retirement village went on the market recently. Both were sold within days. The one I know for sure about had its owners accepting an offer $100,000 over their asking price. A lot of renters feel the pressure to own, particularly while mortgage rates are still relatively cheap. So they will jump into the bidding war, fearing even steeper rent increases.

Costs are up in part because there’s a whole lot more money floating around. We probably got close to $5000 in pandemic stimuli, money we didn’t need because no one saw fit to do any means testing. To companies, the Federal Reserve basically made money available at zero percent interest.

Add that to the problem of having a hard time getting stuff you need it because it’s in short supply, and it’s no wonder that inflation is at 7.5%. For most people, the real rate of inflation is a lot higher, because it’s the stuff you absolutely need that is the most demand, which further pushes up these prices.

Some of us pushed up prices by retiring, or effectively pricing ourselves out of the labor market. We saw that it literally wasn’t worth the costs to stay in the labor market, not when you factor in the dangers of the pandemic, our ages, our obesity and in some cases the bloated size of our 401K’s. This exacerbated a labor shortage which helped to push up wages which unsurprisingly also helped push up prices.

Anti-vaxxers and anti-maskers caused a lot of inflation they now decry. They caused our emergency rooms to overflow and for nearly a million people to die of covid-19, probably about 80% of them unnecessarily had we had done a good job of managing the pandemic. It certainly contributed to the smaller labor market, as in dead people can’t work.

And simple greed caused a lot of inflation. In Atlanta, 32.7% of homes in the last quarter were bought by investors who appear to want to rent them up to capture sky-high rental rates. Nationwide, more than 18% of homes in the last quarter were purchased by investors, making it harder to buy a house to own. With rents up 20% to 40% in general, there’s a lot of money to be made by squeezing tenants. This should be considered immoral and sinful, but in America we call it capitalism.

The Fed’s solution to all this will be to raise interest rates. This will have the effect of hurting those with the least ability to pay, which will certainly lower demand, but at the expense of a lot of misery, suffering and homelessness. The Fed’s monetary tricks eventually become counterproductive causing predictable side effects like inflation. Most of us could have predicted these high inflation rates, but the geniuses at the Fed could not.

Their actions also perturbed where a lot of new money went. It went disproportionately to businesses and the rich. Yes, stimulus helped, but that wasn’t an action by the Fed, but by Congress. While stimulus helped, it was a drop in the bucket compared to the money the Fed created and spent to prop up stock prices. Increased stock prices benefited those who owned stock, which is not most of us.

The result of all this money shifting and a pandemic was a lot of market chaos that was easily predictable. We bought short term relief at the cost of new long term issues, like inflation that will not easily be tamed.

Markets now expect the Fed to come to the rescue to bail them out for their inefficiencies. Government seems to reward those who need to least reward, like Amazon and millionaires, while the rest of us are caught in a whirlwind we didn’t want and left us shell shocked and battered.