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Even MORE Proof Inflation is Not Caused By Government Spending
Inflation, the general increase in prices of goods and services over time, has always been a topic of concern for economists and policymakers. Many theories have emerged about its causes, and one popular belief is that it is primarily driven by government spending. However, recent evidence suggests otherwise, providing even more proof that inflation is not caused by the actions of the government.
Governments often inject money into the economy through various means such as fiscal stimulus packages, increased government expenditures, or printing more currency. Critics of government spending argue that this influx of money leads to an increase in the demand for goods and services. As demand rises, prices naturally go up, resulting in inflation.
However, a closer examination of inflationary trends and the relationship between government spending and price levels reveals a more complex picture. Various studies have debunked the notion that inflation is caused by government spending alone.
Firstly, looking at historical data, we can observe periods of inflation without significant increases in government spending. In the late 19th century and early 20th century, for example, the United States experienced inflation while the government expenditures remained relatively stable. This historical evidence clearly shows that inflation can occur without a direct link to government spending.
Furthermore, inflation is not solely driven by demand-side factors like government spending, but also influenced by supply-side dynamics. Factors like changes in production costs, input prices, and market conditions can all heavily impact the prices of goods and services. These supply-side factors need to be considered in any inflation analysis, as they often play a more significant role than government spending.
Moreover, studies have shown that the relationship between government spending and inflation is weak or even negative in some cases. Research conducted by economists such as Alberto Alesina and David Romer has found evidence that a higher level of government spending is associated with lower, not higher, inflation. Their studies have shown that when governments increase spending during a recession, it can actually stimulate economic growth and mitigate inflationary pressures.
Additionally, there are examples of countries with high government spending but low inflation rates. Scandinavian countries, for instance, have some of the highest government spending levels globally, yet they also consistently maintain low inflation rates. This contradicts the narrative that government spending is the key driver of inflation.
It is important to note that government spending can have an impact on inflation indirectly through other channels. For example, if the government is financing its spending through borrowing, and this results in increased interest rates, it can lead to higher inflation. However, this indirect relationship is much more nuanced and complex than the simplistic view that government spending directly causes inflation.
In conclusion, even more evidence points to the fact that inflation is not solely caused by government spending. Historical data, supply-side factors, and empirical studies all challenge the widely-held belief that government spending alone drives inflation. While government actions can indirectly influence inflation, the dynamics of inflation are much more intricate, involving multiple factors that extend beyond the scope of government spending. Understanding these complexities is crucial for a comprehensive understanding of inflation and for developing effective economic policies.
Correct me if im wrong, but it seems like the definition of inflation has changed over time. Ive always considered the dynamics between supply/demand not inflation. Government spending and money printing, however, relative to the amount of goods/services in an economy, is definitely a driver of our inflation rate. Another point to note…
Government knows their spending causes inflation. Otherwise they wouldnt have such incentive to change the way they calculate CPI as many times as they have.
An increase in the supply of money might not cause inflation, but GIVING large amounts of money to people will cause shortages and problems with the supply chain – and that will definitely cause inflation. If the money entered into the economy a different way I would expect that the results might be different.
Bull**it: Endless printing of money and gov bloat is directly causing inflation. Plus worthless Biden's war on energy is enhancing inflation. To have a strong economy means to have a healthy energy sector. This push for "green energy" is a joke and every speech is filled with man made climate propaganda. This country can easily be energy independent but Dems want this country to fail.
I think we need new terms for these issues. The rise in prices in the last few years was caused by supply chain issues and other shortages due to Covid and the war in Ukraine. We shouldn’t refer to this as “inflation”. Maybe “temporary price increases “ or something similar . The word “inflation “ describes an actual event. What is being inflated? The money supply! It’s a necessary thing to do. As the population expands, we have to have more money to spread out in the economy. Imagine having the same amount of money in our current economy that we had in 1800. It would be unworkable. The wisdom of expanding the money supply in today’s world is debatable. The vast majority of money is digital these days and the stock market alone creates or destroys a great deal of money every day. But the biggest problem with the viewpoint that expanding the money supply is not the cause of inflation is that it convinced people to print their way out of any crisis. And we have evidence of what happens when we do this. Zimbabwe or maybe Germany in the 1920’s?
Whether inflation results from government deficit spending is a different question than whether government deficit spending is inflationary. When in US history has the money supply doubled in a 5 year period in which inflation has not followed? Answer: Never.
College tuition. Students cannot afford to pay for college. Government prints more money and loans it to college students so they can afford college. College sees students now have more money and increase tuition because they can. Now students once again cannot afford tuition, but everyone is now paying more. Government prints more money and loans to students. Rinse and repeat. Now the government has exacerbated the tuition problem placing thousands of students into more debt than they would have been in if the government had stayed out of it. Then the government tells these students the debt does not have to be repaid. Where does the money come from to forgive that debt. The government prints it. Inflation!
It's not government spending that causes inflation. It is the government printing money that causes it. Remember the Wiemer Republic.
11:44 As long as business can create enough product to maintain equilibrium with the amount of money the government places into circulation, inflation will not occur. Wow. Giving government a free pass
Answer: The government, by placing more money into circulation, caused the rents to be inflated. Persons who did not work on the base did not receive the significant pay increase, yet their rents also increased significantly. The government by printing money and placing more money into circulation causes inflation on a nationwide scale. And the government has printed a lot of money and given it to a lot of their supporters in the last several years.
More dollars chasing the same amount of good doesn’t cause prices to rise. Fascinating.
Government prints more money. Government gives more money to people. Business selling commodities see consumers have more money. Businesses raise the cost of commodities being sold because they can. Persons having more money continue to buy commodities at increased cost because persons have excess money that the government printed and gave to them. If government did not give more money, persons would not have money to spend, business would be unable to sell commodities at higher prices.
Now a real life example. The military base I work at was redistricted by the government. It was removed from the Bakersfield local pay and placed into the Los Angeles local pay. As a result, persons working at this base saw a significant increase in their pay. Landlords at the local town, saw the significant pay increase given to these persons and raised their rent significantly since these persons could afford the increased rent. Which action caused the rent to be inflated?
I know a talker when I see a talker
Waiting for you to provide supporting evidence to your assertion
Waiting for you to get to the point
The ONLY cause of long term inflation is the creation of money by Central Banks. I don't mind having a discussion about this if you want, we could start with the fact that prices could not increase by a factor of 10 since the 1970s if the Central Bank hadn't created money as there simply would not be enough money in the economy to for it to happen. There is an unknown and not well understood time lag between creation of money and inflation.
Supply chain issues, energy high cost and corporate greed are the main culprits for the past two years of inflation…
You are not taking in all the data. The Federal Reserve is part of the government. When they buy US Bonds and T-Bills; they inject money into the economy; thus inflation.
Either way it's still Sniffy Joe's fault.