-1
archive,date,paged,paged-2,date-paged-2,stockholm-core-1.0.8,ctct-stockholm,select-child-theme-ver-1.1,select-theme-ver-5.1.5,ajax_fade,page_not_loaded,menu-animation-underline,header_top_hide_on_mobile,wpb-js-composer js-comp-ver-6.0.2,vc_responsive

WHY INFLATION IS AT A 12-YEAR-HIGH

From the Foundation for Economic Education

Yesterday, the Bureau of Labor Statistics (BLS) released numbers indicating that the average price level of consumer goods has risen 4.2% since this time last year. This is the highest rate since 2008. In other words, the average consumer making the same salary this year has taken a pay cut when you consider what their paycheck can actually buy.

How does the BLS know this? One way the BLS keeps track of inflation is by using the consumer price index (CPI). The CPI uses some of the common goods urban consumers buy, and they keep track of the prices of these goods each year.

A CPI growth of 4.2% means this “basket” of goods the average urban consumer buys has gotten 4.2% more expensive. Economists call this measure inflation.

The CPI is by no means a perfect measure of inflation, nor could any measure be, but it provides some kind of benchmark to compare how much prices are changing over time.

Why is inflation increasing now? It’s all about the money. Imagine tomorrow that suddenly all US money becomes a 10x larger number. Ten dollar bills become 100 dollar bills, bank accounts with $10,000 turn into accounts with $100,000, and the four quarters in your cup holder transform into a 10 dollar bill.

This might sound nice at first, but consider what happens next. If prices stay the same, suddenly people rush out to buy new things. Suddenly, a student with a $7000 student loan can buy a Porsche. Someone can afford a down payment on a house who was months away before. A kid with a generous allowance buys a flat-screen TV.

But now the problems appear. All cars for sale are being driven off the lot. TV shelves are empty. House offers pour in only minutes after listing. There is more money, but the exact same amount of goods exist. With so many customers demanding new goods, sellers have 10 customers fighting over one product. So what happens? The price is bid up.

In fact, prices in this world will make, on average, the same change as bank accounts. One dollar candy bars become $10, average quality TVs cost thousands of dollars, and the $100,000 two-bedroom in Kansas becomes a million-dollar purchase.

If more dollars chase the exact same goods, prices will rise.

Although the above example is simplified, the general idea holds in the real world. Unfortunately, not everyone has gotten 10x more money, but new money has been introduced to the economy.

The quantity of money (measured as “M2” by the Federal Reserve) has increased more than 32.9% since January 2020.

That means nearly one-quarter of the money in circulation has been created since then. As the following graph shows, a change like this is unprecedented in recent history.

Image Source: Federal Reserve Bank of St. Louis Series M2SL

The newly printed money helps fund the slew of trillion-dollar coronavirus spending which benefitted massive corporations. It also is an attempt to satisfy consumers’ demand to hold money so they will be comfortable spending again. And spending they are.

As lockdowns end and finally allow consumers to return to normal economic activity, the new money begins to move through the economy more quickly. Banks have more money to lend out and people are building new homes. As more homes are built, the demand for wood increases. As the demand for wood increases, the price of wood goes up. Sound familiar?

Although the new money won’t hit all markets at the same time, and it may take some time for demand to return to pre-lockdown levels, the inflation numbers indicate this process has begun. In order for inflation to slow down, either spending would have to slow down, or the government would have to lower the money supply.

None of this means hyperinflation is coming tomorrow or ever. In fact, it could be a blip caused by a low CPI benchmark. But given all the new money floating around, it shouldn’t surprise anyone if this rate of inflation were to persist or increase.

The Federal Reserve members aren’t worried, and, in fact, they claim to not be considering contractionary monetary policy until inflation is this level for some time. Many economists argue inflation would need to be much higher to be worth worrying about. But inflation need not be hyperinflation to be harmful to many. Inflation’s effects are not equal.

After a year of lockdowns leading to job losses and pay cuts, many Americans aren’t in a position to pay 4.2% higher prices. It’s easy for someone with a comfortable job or nest egg to scoff at these price increases, but working-class and poor Americans feel the difference.

At a time when Americans work to rebuild their savings to protect their families from future uncertainty, is it wise to ignore a policy that slowly eats away at their savings while they scramble to find new coupons for groceries or consider taking a much longer public transit route to save on gas? These struggles are worth consideration.

So will inflation rise? Will it fall? No one can say for sure. But we can say for sure that inflation doesn’t need to be in the double digits to hurt.

 

Carney’s Lockdown has left Delaware behind.

While the COVID-19 pandemic has been difficult on the nation, Delawareans are lagging far behind its neighbors as the world begins to find its way back to normalcy.

 

According to Wallet Hub, Delaware is ranked 48th in economic recovery since the start of the pandemic. Unemployment claims are up 998% compared to this same week in 2019 – nearly twice the increase of the next largest jump in unemployment claims, New Mexico at 508%.

 

Four of the top five states recovering the quickest – South Carolina, South Dakota, Iowa, and Kansas have had more relaxed restrictions compared to Delaware since the start of the pandemic and have adopted practical, pro-business common sense measures to keep their states thriving.

 

South Carolina kept its manufacturing sector open during the pandemic, allowing the $200 billion industry to sail smoothly through the past year with a job decrease of only 2% which is expected to bounce back to pre-pandemic employment by the end of 2021.

 

South Dakota, which has an economy that relies heavily on tourism, took quick measures to keep travelers safe and top destinations open. The state only saw a 3.5% decrease in tourism revenue while its state parks welcomed 8 million visitors – an increase of 31% over 2019. In 2021, the state is expected to top pre-pandemic tourism dollars, with hotels already seeing a 41% increase in bookings over 2020.

 

Kansas schools have been in session for full-time in-person instruction since the beginning of April, after Gov. Laura Kelly (D) ended all executive orders relating to the pandemic on March 31.

 

According to NPR, Gov. Henry McMaster (R-South Carolina) lifted mask mandates and banned vaccine passports earlier this month. He stated this week that “maintaining the status quo ignores all of the great progress we’ve made.”

 

Gov. John Carney should take a lesson from Gov. Kelly and Gov. McMaster. Despite Carney’s repressive policies, Delaware’s positive test rate is just 0.6 percent more than South Carolina’s , and can be seen  following a steady downward trend since January on the State of Delaware’s “My Healthy Community” website. Delaware is also slightly ahead with the percentage of adults having received at least one dose of the vaccine, 45 to 43.

 

Delaware is now on the cusp of its 28th modification to the original state of emergency order which will lift indoor capacity restrictions – as long as the space can comply with the new recommended social distancing of three feet (down from six). Despite these small improvements, customers must remain seated at both indoor and outdoor dining establishments and masks are still required.

 

While Delaware’s trends and modifications seem encouraging from a health and business perspective, from a financial one, they are not. Even as indoor locations increase their capacities, many employers are having difficulty finding new hires because they find themselves in competition with the government for labor.

 

The extra $300 per week unemployment benefit provided by the Federal Pandemic Unemployment program (FPUC) distorts incentives to work, and makes it more economically enticing for the unemployed to remain on the rolls rather than take available jobs.

 

Twelve states including South Carolina have announced cutting back on the federal emergency unemployment benefits with the goal of ending the labor shortage, hastening economic recovery, and saving taxpayer dollars.

 

Delaware is continuing with the assistance and in February, passed House Bill 65 which waived 2020 income tax on unemployment benefits.

 

This means a continual flow of generous benefits for the 6.5% of Delawareans who remain unemployed (the national unemployment rate is 6.1%) plus a tax break on those earnings. According to The Hill, some unemployed individuals could be bringing home up to 150% their usual earnings by relying solely on current unemployment benefits.

 

The Delaware Division of Small Business has been assisting small business owners throughout the pandemic, offering nearly $200 million in relief grants to approximately 4,000 businesses, but these businesses need to be open full-time at full capacity with a full workforce to be weaned off government assistance.

 

The combination of both employers and employees both relying on government assistance to stay afloat is unsustainable and will continually fuel the state’s labor shortage.

 

The responsibility of making the necessary changes to incentivize Delaware’s residents to work, allowing businesses to reach their full potential and giving Delawareans the return to normal that they desperately need lies in the hands of Gov. Carney.

FOR IMMEDIATE RELEASE; A Better Delaware Welcomes a New Executive Director


Kathleen Rutherford

Wilmington, Delaware – May 4, 2021 – Chris Kenny, founder of A Better Delaware, Inc. (ABD) has selected Kathleen Rutherford as its new Executive Director to lead his political advocacy organization which supports pro-growth, pro-jobs policies and overall transparency in state government.

Rutherford will succeed Zoe Callaway who for two years was at the forefront of driving over a dozen advocacy campaigns, including raising public awareness about a possible soda tax and income tax hike. ABD was also a frequent critic of the Health Resources Board, the authority of which was recently stripped by the state Legislative Oversight and Sunset Committee. Currently, A Better Delaware is advocating for more rapidly opening up our state completely so our families, kids, and businesses can heal mentally, emotionally, socially and financially from the disastrous effects of the prolonged lockdown during the pandemic.

Callaway has accepted a position at the highly regarded Tax Foundation in Washington, DC as Manager of Education and Outreach and will hand over the reins to Kathleen in the beginning of May. Kenny and Callaway have worked seamlessly together to build the ABD brand. Kenny commented, “While I am saddened to see Zoe leave after such an incredible performance launching ABD to become a formidable presence in Delaware, I am very happy to see her land a much larger role in such a prestigious national organization in DC.”

Over the past six years, Rutherford has directed several major political campaigns in Delaware helping to raise over one million dollars in donations, recruited hundreds of volunteers, and consistently lead a record number of voters to the ballot box in support of her candidate clients. During this time, Rutherford also formed Rutherford Consulting, Inc. offering communications and marketing strategies to advance her clients position with the Delaware General Assembly and the regulatory bodies of the State of Delaware. Kenny is looking forward to ABD’s continued success with his new hire stating, “Kathleen brings that seasoned Delaware political experience coupled with fundraising prowess that will bring ABD to new heights. I am excited to see what we can achieve with her at the helm.”

“The work at A Better Delaware is consistently in motion and the organization is affecting change. This is where I want to be,” said Rutherford. “My goal as Executive Director for A Better Delaware, is to continue their year-round communications which promote policies benefiting Delaware’s economy, and enhance their grassroots efforts, which have to date earned 10,000 Facebook followers and over 13,000 email subscribers. I am extremely excited to carry forward A Better Delaware’s mission of advocating for a transparent government with common-sense policies that benefit all Delawareans.”

ABOUT A BETTER DELAWARE A Better Delaware is a non-partisan public policy and political advocacy organization that supports pro-growth, pro-jobs policies and greater transparency and accountability in state government. A Better Delaware can be found on Facebook @abetterdelaware and at www.ABetterDelaware.org.

###

Contact: Kathleen Rutherford
kathleen@abetterdelaware.org