Inflation versus Rising Prices
Inflation is an increase in the overall general price level of an economy. It should not be confused with an increase in the price of a good or service over a short period due to increased demand, relative to supply in the case of the introduction of a new version of a product like an Xbox, nor reduced supply, relative to demand due to supply chain problems, such as the case of computer chips for automobiles.
Nobel Prize-winning economist Milton Friedman noted, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output (goods, services and or assets).”
What is noteworthy today is President Biden declared in 2020 as he campaigned for the U.S. presidency that “Milton Friedman is no longer in charge.” This is ironic given that 10 months into Mr. Biden’s presidency (and driven by massive increases in fiscal and monetary policy from his and the previous administration) he is presiding over the highest rate of U.S. inflation in more than thirty years. Or as Bill McGurn recently pointed out in The Wall Street Journal on the 15th anniversary of Dr. Friedman’s death: “Friedman seems to be getting the last laugh on the issue of inflation” making the University of Chicago icon as relevant as ever. This is especially true today as one reflects on Friedman’s secondary definition of inflation as a “cruel tax”. Here Friedman notes that inflation reduces a persons' purchasing power as more dollars are injected into the economy relative to output making each dollar less valuable and harming the poor disproportionately!
Inflation and the Celebration of Thanksgiving
Current year-over-year inflation in the United States is running at 6.2 percent with states like Michigan running at roughly 6.5 percent, slightly higher than the national average.
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There is much debate as to whether this inflationary spike is transitory or permanent and how much of our current rising prices are caused by supply chain malfunctions and/or an increase in demand for a popular product or service. Or whether it is as scholars like Milton Friedman would argue largely due to excessive government spending and monetary policy used to fight the pandemic. One can certainly look at the more than two trillion dollars the Federal Reserve has injected into the economy in the last 2 years and upwards of eight trillion dollars more designated or under debate to be spent as the root cause of today’s inflation surge. This excessive liquidity in the capital markets certainly validates Friedman’s explanation of why prices across the economy are increasing with no general explanation other than there is more money in the economy chasing the same or slightly more goods and services.
As Thanksgiving approaches, our research predicts Americans will pay more this year ($53.94) for a traditional dinner for 10, including turkey, bread stuffing, sweet potatoes, rolls with butter, peas, cranberries, a relish tray of carrots and celery, pumpkin pie with whipped cream, coffee, milk and/or water to drink. This cost is 15 percent higher than last year’s 10 year low of $46.90 and 9.87 percent higher than the previous 10-year average of $49.10 according to Statista. Many Americans will choose to substitute the traditional turkey (turkey prices are up between 20 and 24 percent) with chicken to make the meal more affordable.
It is clear to us that the price of Thanksgiving dinner is the validation of Friedman’s premise that inflation is a monetary phenomenon caused by excessive government monetary and fiscal policy with only a minor level of higher prices at Thanksgiving due to supply chain problems. Additionally, the cost to travel and spend Thanksgiving with family or friends will also be considerably higher in 2021. Based on current national averages: gasoline is up 61 percent; hotels are up over 15 percent; airline tickets are up over 24 percent; rental cars are up roughly 86%; new cars are up 9.8 percent; and the cost of used cars, SUVs and trucks are up almost 26 percent year over year. So, if you’re traveling for Thanksgiving, your overall costs will be considerably higher.
Let’s not forget why we celebrate Thanksgiving
We hope at this time of year Americans reflect on the very meaning of Thanksgiving. From the first Thanksgiving in the 1600s in Massachusetts to modern times, Thanksgiving has been a time to reflect on the many blessings, good times, and people in our lives who have made a difference, and to give thanks that we are very fortunate to be citizens of the greatest country and economy in the history of the world.
Most importantly, we should not only be grateful for all that we have but also reflect on what we can do to improve the lives of others now and moving forward. Now more than ever we should consider acts of kindness; helping a family member or neighbor, service to our communities, or if able: a financial gift to a place of worship or local charity.
It is our hope that every American WILL have a joyous Thanksgiving – and the prospect of a better future. With inflation at a 31-year high, many more people will need to depend on Thanksgiving generosity in 2021…thus we must all do our best to enhance the Thanksgivings of others this year while enhancing our own Thanksgivings by the process!
Finally, for the sake of a brighter American future, it would be wise if Milton Friedman once again became relevant in the White House and the halls of Congress moving forward!
HAPPY THANKSGIVING AMERICA!!
About the Authors: Dr. Timothy G. Nash is Director of the McNair Center at Northwood University, Dr. Kent D. MacDonald is President of Northwood University, Dr. Daniel G. DeVos is Chairman of the Orlando Magic and Chairman and CEO of DP Fox Ventures, and the Honorable Lisa C. McClain is a member of the U.S. Congress from the 10th District of Michigan.
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