The Inflation Ratchet
The U.S. dollar hasn’t quite turned into a Zimbabwean banknote — a $100 trillion dollar bill was worth around 40 American cents, but now is sold only for its novelty value — but we’re seeing our savings frittered away. Anyone who has tried to find, say, construction labor or buy a new vehicle, has learned that a dollar doesn’t go very far these days. I just bought hay for our goats and even the price of that is up 50 percent from a month ago.
The main reason, of course, is the government has been dumping an unprecedented amount of money into the economy to ease the pain of the government-enforced COVID shutdowns. The feds alone have run up debt to drop $5 trillion in stimulus payments, including direct payouts to people who would rather stay at home than work a regular job. No state has been as generous with other people’s money as — you guessed it — California.
“We enacted the most comprehensive economic stimulus program in the nation last year, getting billions in immediate relief to millions of Californians,” Newsom said earlier this month in announcing yet another new stimulus package. He apparently struggles to make the connection between all that past spending and our 8.3 percent inflation rate.
Buoyed by an amazing $97.5 billion surplus — a higher amount than the entire budgets of all but three states — the governor is now showering more goodies on everyone. “This inflation-relief package will help offset the higher costs that Californians are facing right now and provide support to those still recovering from the pandemic.”
The governor’s statement promises $11.5 billion in gas tax refunds for vehicle owners, $2.7 billion for emergency rental assistance, $1.4 billion to help Californians pay past-due utility bills, nearly $1 billion to boost wages for healthcare workers, $750 million in free public-transit vouchers, and billions more for various and sundry giveaways. The governor also boasts that California’s minimum wage is increasing to $15.50 an hour in January.
I’m all for tax relief, of course. California’s budgetary booms and busts are the result of its steeply progressive, capital-gains-dependent tax system. The astounding surplus is the result of the government receiving far more money than it needs. As a matter of principle, the state should return those dollars to the people who overpaid them, including drivers who paid too much in gas taxes.
As the California Taxpayers Association explains, “California’s personal income tax has the highest top rate and one of the most highly progressive structures in the nation. California’s top rate is 13.3 percent (including the 1 percent surcharge for mental health programs, for all personal income taxpayers with taxable income over $1 million).”
This massive surplus gives the state an unparalleled opportunity to fix its tax structure, pay down its large unfunded liabilities, and invest in long-neglected infrastructure while also refunding taxpayers their overpayments. Instead, the governor is playing Santa Claus and doling out freebies in a way that’s certain only to ratchet up inflation rates.
Even the mainstream media is noticing. A report in the Sacramento Bee noted that the spending “will put salve on key pain points for Californians most affected by rising gas and grocery prices but also likely will cause prices to tick up just a tad more, leading economists say.” Recipients of the new stimulus “are going to pour this money into a consumer market that already has excruciatingly high demand for many goods and services that are in short supply.”
You don’t say. Leave it to California to battle a generalized and dramatic rise in prices by adopting policies that will push those prices even higher. The state also is having a labor shortage, so its latest scheduled minimum-wage boost — not to mention subsidies for people to twiddle their thumbs at home all day — will only exacerbate labor shortages.
These problems are nationwide, but California is intent on adopting the worst responses — subsidies, higher mandated wages, and additional welfare spending, which will provide a consistent loop of higher prices. The state won’t relent from other inflationary practices, such as our specially mandated gas formulation that limits competition and land-use rules that make it difficult to add to the housing supply. Not to mention our high tax and utility rates.
The good news, anyway, is that California at least doesn’t print its own currency.
Image: Hugh O’Neill