OPINION:
Given recent economic news, I wonder whether our leadership has even a fundamental understanding of how a free-market economy works.
Here’s a basic layout. The cost of goods is determined by the law of supply and demand. A scarcity of goods will increase their cost, while an abundance of goods will decrease it. An obvious example: Since the federal government has curtailed the production of fossil fuels, the cost of energy has risen. So the cost of everything that requires energy has risen, too.
But really, are there any goods that don’t require energy to produce and deliver? When weather or blight destroy portions of a particular crop, only the costs of the crop and its subsequent uses rise. But the government has chosen to reduce production of energy, an item on which our entire economy depends.
This phenomenon has been labeled inflation, but it’s really an effect of the law of supply and demand. Inflation is a monetary phenomenon. It is a devaluation of the currency due to an increase in the money supply. In a healthy, growing economy, there is a natural increase in the money supply. For example, when someone deposits $100,000 in a lending institution, that institution can lend someone else $10,000 for home improvements, thereby increasing the money supply. The depositor still has $100,000, but now the borrower does, too. Only the government can inordinately increase the money supply, thereby creating hyper-inflation.
Our government has crushed our energy independence, reducing the domestic supply of energy and causing an increase in the cost of just about everything in our economy while devaluing the dollar with reckless spending.
Is rudimentary economics no longer taught in our schools? Back in the 1950s, Mr. Kyle, my ninth grade “Citizenship” teacher, taught his class the causes and perils of inflation. May God help us.
DANIEL P. MCKIM
Springfield, Virginia
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