When viewed from the inflationary point of view, America is not doing well these days. The situation has caused some people to dig beneath their feet looking for the causes, but find none. Others believe they see causes that do not exist. Still others, maliciously invent hurtful narratives, which they know are bogus, and attribute them to their political rivals.
The reality is that the economy of a nation responds
to measures that cannot be found beneath the feet of those who search for the
economy’s malfunction. In the same way that the measures taken in the first
decade of the twentieth century has led to the depression of the late twenties;
also in the same way that the war economy of the nineteen sixties has led to
the inflation of the nineteen seventies, America’s current inflation was
produced by Trump’s tax cut for the rich, done a number of years previously.
And so, to do a proper analysis of the current
situation, we must begin by asking the following questions: What is inflation?
How does it happen?
Inflation is the economy’s way to communicate that the
currency with which it is run, has increased, therefore was reduced in value.
In fact, inflation is the manifestation of the economy’s
response to the law of supply and demand which says that when a commodity or a
service are abundant, their values are reduced. But when they experience a
shortage, their values rise. What we must not forget, however, is that the said
values are measured in terms relative to each other: That is, how much goods or
services are traded against how many units of the currency?
An economy that’s performing well is so maintained, year
after year, by the ability of the Central Bank (at times called the Fed) and
the government’s treasury to keep the supply of money at a rough parity with
the supply of goods and services that the economy is capable of producing. At
times, however, hard to control circumstances intervene, forcing the Fed or the
Treasury to upset that balance by manipulating the money supply and correcting what
the circumstances have caused. At other times, the correction is done for political
reasons, something that must be called by its real name: Corruption.
Corruption is what Donald Trump brought to America in
many ways, one being to constantly strive making the economy work for him and
his cronies at the expense of the working American middle-class which pays the
bulk of taxes. It is that Donald Trump committed the sin of cutting the taxes that
the rich were paying instead of cutting the taxes that the middle-class was
paying.
Now, the question to ask is this: Generally speaking, what
does cutting taxes for any segment of the population do to an economy? The
intuitive response is that cutting taxes puts money in the pockets of consumers,
risking the rise of inflation. This may be true, but only to a small extent
because the counterintuitive point of view that comes with a deeper analysis, tells
a different story.
To understand this part, we first realize that in a
modern industrial economy, the Gross Domestic Product (GDP) is made roughly of one
third government, one third wages and salaries, and one third natural resources,
rent and manufactured commodities. This means that every dollar you inject into
the economy by way of a tax cut to the working middle class will generate 3
dollars worth of new goods and/or services. This says that when all is taken
into consideration, the bigger rise in the supply of goods and services over
the rise in the money supply will dampen the inflationary pressures.
This being the case, where did Donald Trump go wrong?
The answer is that giving more money to rich Americans
produces an effect that is seen around the world. It is that normally, the rich
do not invest the money in the country they know owes them nothing, but use the
money to run shady enterprises such as gambling, thus have a fun and easier time
measuring themselves against others, and bragging about being richer than the next
guy.
In America, this habit of the rich has a nefarious
double effect. Because it is easier to explain this phenomenon when discussing
a political situation, it is what I’ll do:
Imagine two rivals running to be elected in the same constituency.
When the counting of the votes is completed, it turns out that they got exactly
the same number of votes: 1000 each. Candidate ‘A’ asks for a recount which,
when done, shows there was an error concerning one of the votes. The election
commission corrects the mistake by taking one vote from him and giving it to
his rival, candidate B. And so, even though the error was only of one vote, the
count as it stands now shows a two votes difference between them, with the
final tally standing at 1001 versus 999. Truly a double whammy.
This often happens to America because its population is
made more of consumers than savers whereas the rest of the world has it the
other way around. The net result is that the foreign governments are seen to
bring the American bacon home (so to speak) and gives it to a population that
saves it in a well refrigerated place.
By contrast, the corrupt American governments of the Trump kind, skimp on feeding their people adequately, and gorge the foreigners on whom they depend to become fabulously rich after leaving the government job they hold, and having a title that allows them to say they were once a social climbing and stuffed shirt that never did anything good for their people.