Danger Ahead: Why We Are Heading Toward Double-Digit Inflation

Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

“Government is the only agency that can take a valuable commodity like paper, slap some ink on it and make it totally worthless.” (“Maxims of Wall Street”, p. 152)

Yesterday, the Social Security Administration announced that it will increase monthly Social Security checks by 5.9% in 2022, its largest jump in 40 years.

Inflation is back with a vengeance. President Ronald Reagan and his Fed Chairman Paul Volcker fought the good fight against inflation, and we entered a disinflationary period that lasted 40 years. That’s quite a legacy.

But President Joe Biden and Fed Chairman Jay Powell seem determined to bring back inflation and higher interest rates. They are succeeding.

Because of huge deficit spending and easy money, commodity prices are up 50%. The official government statistic, the Consumer Price Index (CPI), has advanced nearly 6% this year. Long-term interest rates are also starting to rise.

Of course, I believe the CPI underestimates the actual rise in the cost of living because it excludes such items as income taxes and housing prices. As you can see from the chart below, housing prices are moving up rapidly, even faster than the CPI.

(Reprinted by permission.)

Financial advisor Scott Grannis stated, “There is an 18-month lag between rising house prices and rising owner’s equivalent rent (OER). We are only now at the beginning of the increase in OER. This could drive higher CPI inflation for the next year or two.”

Economists at Shadowstats.com (see below) think double-digit-percentage inflation is already here.

(Reprinted by permission.)

As a consumer and an investor, you need to increase your net worth by 10% or more just to stay ahead.

Wage Inflation and Minimum Wage

The Biden administration likes inflation and generous, never-ending unemployment compensation because it will force corporations to raise wages in response to the labor shortage.

The Democrats failed to push the $15 minimum wage bill through Congress, so they have decided to go through the back door to help out the unions by creating an artificial labor shortage. Businesses will have to pay people more to get them to come back to work, and that means wage increases for everyone and higher prices.

A Nobel Prize for Raising the Minimum Wage

On Monday, Oct. 11, the Nobel Prize committee in Sweden announced that the University of California, Berkeley, economist David Card won the Nobel Prize for his suspect 1994 study on the minimum wage. This was the infamous study that concluded that raising the minimum wage has no effect on the employment of workers, thus denying a basic concept in supply-and-demand labor economics.

Many economists have shown that his study, co-authored with the late Alan Krueger, depended on misleading data about fast food restaurants.

The Nobel Prize committee should have repeated what it had done in the past, giving the award to economists with opposite views, such as in 1974 (Friedrich Hayek and Gunner Myrdal on market intervention) and 2013 (Eugene Fama and Robert Shiller on efficient markets).

A good choice to counter David Card would have been another David — David Neumark, a professor at the University of California, Irvine. He’s done major research showing the unintended consequences of above-market minimum wage legislation.

I suspect giving David Card this prize is going to stimulate more efforts to artificially raise wages with all its ill-effects on employment, mechanization and working hours, rather than focusing on increasing labor productivity and corporate profitability (companies with higher profit margins pay their workers more).

Are the Economics Textbooks Out of Date?

Regarding the textbook approach to minimum wages, Card said in a recent interview, “The textbooks are frustratingly stupid in our field. The simple models that economists use — they want to hold onto these models, even though they know full well that there are problems with them.”

Really?

A fascinating new study of minimum wage legislation, a working paper published by the prestigious National Bureau of Economic Research (NBER), demonstrates that supply and demand still apply to the labor markets. See it here.

As I read it, economists Michael Strain and Jeffrey Clemens conclude that the closer the minimum wage gets to the equilibrium average wage for unskilled and low-skilled labor, the impact on employment is close to zero. But the further the minimum wage legislation is from the equilibrium average wage for these workers, the greater the impact on employment.

It looks like standard supply and demand curves work for the labor market after all. I sent this paper to David Card, and he never responded.

I see that Florida passed a referendum in 2020 raising the minimum wage to $15 an hour (gradually) and then indexing it to inflation. The scary part is the indexing. It means that more inflation is inevitable.

The Double Whammy of Inflation and Progressive Taxation

Inflation also benefits the government by pushing taxpayers into higher tax brackets.

Last week, under the influence of Treasury Secretary Janet Yellen, 136 nations in the Organization for Economic Cooperation and Development (OECD) signed an agreement to impose a minimum 15% tax rate on big companies. I first thought it was a typo — didn’t they mean a maximum 15% tax rate?

A flat maximum tax of 15% is ideal. Under a minimum tax, there is no limit to government abuse. As the great Scottish economist John Ramsey McCulloch warned, “The moment you abandon the cardinal principle of exacting from all individuals [or corporations] the same proportion of their income or their property, you are at sea without rudder or compass, and there is no amount of injustice or folly you may commit.”

Special Sections on Inflation, the Minimum Wage and Taxation in “Economic Logic”

My guidebook, “Economic Logic,” has several sections on taxation, inflation and the minimum wage.

Chapter 10 has a whole section on why the minimum wage is bad for workers and businesses. I offer several ways to raise wages “naturally” without government interference.

When I teach students at Chapman University on the pros and cons of the $15 minimum wage, the vast majority change their minds and vote against the minimum wage.

Chapter 19 of my book discusses the evils of inflation and easy-money policies. Chapter 21 introduces the only legitimate principle of taxation known as the “benefit” principle.

Speaking at Hillsdale College on Veterans Day, Nov. 11

I’m happy to announce that I will be speaking at Hillsdale College in Michigan on Veteran’s Day, Nov. 11, at 7 p.m., in Lane Hall. Refreshments will be served. The topic is “What is the Ideal Tax Policy that Maximizes Liberty and Prosperity?” My subscribers are welcome to attend this free lecture. See you there.

For those who can’t attend, consider buying my guidebook “Economic Logic,” which contains 28 valuable lessons on inflation, taxation, the business cycle, investing and the fundamental keys to economic growth and prosperity.

It is the only “no compromise” textbook in free-market economics, with in-depth criticisms of all the various forms of socialism, Keynesianism and Marxism.

“Economic Logic” is indeed a perfect antidote to the bad economics that students are being taught in today’s classrooms.

Click here to read all about “Economic Logic”.

My book has been endorsed by Steve Forbes, who said, “His textbook, ‘Economic Logic,’ now in its 5th edition, demonstrates his ability to look at the whole economy, that is, the real world and real people. The rigidity between micro and macroeconomics is not for him. He realizes instead that they’re all connected together. He begins this book with a profit-loss income statement to demonstrate the dynamics of the real-world economy. No other textbook does this.

“Skousen’s book brings in many other disciplines to teach lessons of economics, whether it is history, sociology, finance or marketing management. He recognizes that individual departments may be a convenient way for universities to organize their academic activities, but in the real world, it does not advance learning. They need to be integrated. In that sense, he is the spiritual heir of Adam Smith, harking back to a time before mathematicians took over economics.”

“Economic Logic” is a 708-page quality paperback with 28 lessons or chapters, and it is ideal for college, advanced high school and home-schooled students.

For a special rate of ONLY $35 (28% off the $48.95 full price) with FREE SHIPPING in the United States, go to www.skousenbooks.com.

Good investing, AEIOU,

Mark Skousen

You Nailed It!

William Shatner Rides the ‘Free Enterprise’ into Space

William Shatner, who played Captain Kirk in Star Trek, yesterday became the oldest man to go where no 90-year-old has gone before — into outer space.

William Shatner, who played “Captain Kirk,” poses with his Blue Origin crew.

Shatner and I have remained friends since he appeared as the keynote speaker at FreedomFest in 2017. The highlight of my interview with him was when I challenged him to an arm-wrestling contest (see the photo below), and even though he was 86 years old at the time and 15 years my senior, he beat me. He’s a strong guy!

Shatner, 15 years older than me, wins our arm-wrestling match.

Even today, at age 90, Shatner loves to ride horses.

When Amazon CEO Jeff Bezos invited Shatner to fly on a “Blue Origin” booster into space, I suggested that he call the spaceship “Free Enterprise,” since it is a combination of the name of his aircraft in Star Trek (“The Enterprise”), and the fact that Blue Origin is a private company, not a government endeavor.

It is amazing what Jeff Bezos has done with private space travel, as has Elon Musk with SpaceX.

Ron Baron, who leads the highly successful Baron mutual funds, is a big fan of Elon Musk.

Baron just released its latest quarterly report, with a big section on why Ron Baron believes that CEO Elon Musk is “the most accomplished and consequential engineer on our planet.” 

Baron notes that Musk is the CEO of two leading “disruptive” technology businesses: the first is the electric vehicle, extended range battery, alternative energy and software business Tesla, Inc. (NASDAQ: TSLA). The second is the privately owned rocket ship, launch and satellite broadband provider Space Exploration Technologies Corp. (SpaceX).

According to a recent survey published by Science Times, Tesla and SpaceX were ranked as “the most attractive firms for leading engineering students (to seek employment) in the U.S.” That survey reports “the electric car company topped the list and the private space company ranked second.”

Baron has invested in both and profited accordingly: Baron Partners Fund has received 14 times its initial investment in Tesla since 2014 while doubling its money in SpaceX since 2017.

Baron is still bullish on both. He stated, “We expect Tesla and SpaceX to each become substantially larger, more profitable and much more valuable during the next 10 years.”

Ron Baron’s motto is “we invest in people, not businesses.” (“Maxims of Wall Street,” p. 157; to order go to www.skousenbooks.com).

What’s so special about SpaceX? In 2021, SpaceX will provide 80% of the launches from planet Earth to space. China will provide 12%! SpaceX’s competitive advantage? Reusability! Elon calls it “RRR.” Rapidly reusable rockets.

Congratulations to William Shatner, Jeff Bezos and Elon Musk, all of whom have gone where no one else has gone before.

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