Antonella Marty
This op-ed was originally published by Newsweek.
Americans have a price problem. U.S. inflation recently climbed to 8.5 percent, which is the highest rate since 1981. Last month, the cost of gasoline skyrocketed by nearly 20 percent.
With higher pricing comes lower purchasing power, making it increasingly difficult for Americans to survive and thrive in the market economy. But that's only the tip of the iceberg. Post-COVID inflation is not a short-term issue; it is very much long-term.
Americans need to assume that inflation is here to stay over the long haul—that is, for years—and adjust their spending, saving and investing habits accordingly. Nearly two-thirds of U.S. consumers have already made cutbacks due to inflation. Expect more of the same in 2023—and perhaps beyond. Let's brace for the worst.
As an Argentine, I have a unique perspective on inflation, which has surpassed 52 percent in my home country over the last 12 months. Across Latin America, inflation has been a constant threat for decades, forcing people to approach daily life very differently. Back in 1986, Gerald Swanson, an economics professor at the University of Arizona, reported on hyperinflation in the region, where "you [didn't] know the price of anything day to day or the value of the wage you [were] paid."
My home country is perhaps the most unfortunate case study. While COVID-19 hindered Argentina's economy, it only exacerbated an existing problem. In 2017, Argentinian inflation exceeded 25 percent. In 2018, inflation surpassed 34 percent, and it nearly hit 54 percent in 2019—that's before the pandemic.In 1980s Argentina, supermarket prices increased twice a day. In Brazil, interest rates rose 100 percent to 430 percent in a matter of weeks. In nearby Bolivia, currency became the third largest import. And it took years for hyperinflation to recede.
In many ways, price increases are merely consequences of government policy gone awry. Last year, Argentina's central bank accelerated the printing of new money, sending more than 250 billion pesos to the national treasury last September alone. In 2020, Argentina used its foreign reserves to ship in banknotes from abroad, further eroding the value of its currency.
Last I checked, there is no known symptom of the coronavirus that forces a national government to become obsessed with printing money. U.S. policymakers would be wise to learn that lesson now, not later, so the inflation problem can become temporary.
Let's heed the warnings of Argentina, Brazil and Bolivia. Let's also heed the advice of the late journalist Henry Hazlitt, who explained the root causes of inflation in the late 1970s, as "stagflation" rattled the U.S. economy. In Hazlitt's words, "The causes of inflation are not, as so often said, 'multiple and complex,' but simply the result of printing too much money." Yes, the COVID-19 pandemic is a Black Swan event, but it doesn't mean that policymakers should regularly raise taxes, spend taxpayer funds recklessly, or impose new price controls (which harm producers and lead to mass shortages).
Proposals like Build Back Better, which cost trillions of dollars, do nothing to limit inflation. In fact, they prolong the issue, with more government money flooding the economic system. Nor does funding such proposals with new taxes incentivize producers to innovate or consumers to support them. The knee-jerk impulse to tax and spend, then tax and spend some more, is dangerous during normal times and even more so during inflationary periods. As Hazlitt put it, "Balance must be brought about by slashing reckless spending, and not by increasing a tax burden that is already undermining incentives and production."
I don't want to see the United States become Argentina, but it's possible. Government policy matters. Only prudent governance will solve the inflation problem—sooner rather than later.