When it comes to finances, it's easy to give advice. It's a lot harder to put that advice to good use, even when you're the holier than thou in the ivory financial advice tower. We all have to navigate the world of milk prices, but what do you do when you're not the average welfare recipient who can just get their money from the Government? You have to deal with realities on the ground – you know – making and spending money, and not falling behind on your social class warfare goals.
Today, we're facing crushing inflation, with historic rates swelling like a hot air balloon from the 80s (piloted by anyone other than Paul Volcker Jr.). Pretty soon a dollar isn't going to be worth much more than a slice of wonder bread.
To navigate the world of inflation, I have some advice for you. Before I begin, I should mention that I am not a professional financial advisor, so take my advice as that of a blogger. Like all blogs, I'm on the internet and we all know based on the existence of The Proud Boys, that the internet can deceive us. Nonetheless, here's what I suggest you do to protect yourself from inflation.
For now, let's just consider this a starting point, and not a comprehensive solution. I'm not trying to Dave Ramsey you in one article, but I do want to provide actionable insights. I guess if I was going to break it down to something very concise, I would summarize it this way: buy assets that appreciate and get rid of the liabilities that are rapidly decreasing in value. For example, buy gas and copious amounts of groceries, and get rid of all forms of money as quickly as possible.
While I'm sure many of my readers will be able to put this advice to good use, we all know that our financial lives are much more complicated, and navigating the difficult issues of economic turmoil can be daunting. All you can do is take things day by day and do what you can. How do you fill up a gas tank? One gallon at a time.
When it comes down to it, to develop a solution, you really need to understand the problem. Let's take a step back and look at inflation.
What Causes Inflation?
There are several contributing factors when it comes to a bloated GDP, but if you are a minority member of Congress or you work at Fox News, the short answer is Joe Biden. But economics is rarely simple, even if Joe Biden is. Here are the commonly understood causes of inflation:
- Rising incomes
- Rising demand
- Limited production
- Limited supply
Unfortunately, I wasn't able to verify if stuttering or wanting to destroy America has been identified as a potential cause for inflation, so casting the blame on one of the few most recent Presidents may not be an option. What we do see here are four occurrences that have taken place in recent memory. Let's talk about each briefly.
Several stimulus bills signed in response to COVID introduced more money into the US economy increasing the income going to businesses and individuals. Trump signed bills accounting for about 3 trillion of those dollars and Biden signed in about 2 trillion. Since 2020 the nominal wages have increased by about 4.4%, the fastest rate since the early 80s.
Increased income results in higher demand, because we all will add extra guac if money is no object. But demand changed for many when baby boomers and their aging children were all buying houses at the same time, in unprecedented numbers. At the same time lifestyles were suddenly changing due to business closures and remote working, causing supply needs to change too. Suddenly, everyone is repairing their homes to sell them or updating them so they can stand to be in them all day, causing shortages of construction materials. Meanwhile, whatever money people had left went to Amazon to ship everything so they didn't have to get sneezed on by the cashier at Ace Hardware. This is not to mention to the sudden demand for masks and medical supplies, and gas for companies that ship skincare products.
No sooner than you could place your one-click order for pork rinds, meat packing plants in the early 2020s were shutting down to mitigate the spread of disease, but so did countless other businesses. When you get a taste of remote work paired with an extra 30 minutes of sleep, some people will decide it's time for a career change. And if the cost of childcare continues to prove unsustainable, a few will decide that career change is to stop careering altogether, and this no doubt happened. The great resignation was not just childcare (although half the time that was a reason). It was also people just realizing they weren't happy. That has created a hiring challenge for many employers, especially the ones that can't compete on some of the benefits of flexible work.
Not only do all the above things cause supply to be strained, but additionally shipping has become increasingly costly because of the pressure on worldwide logistics due to moving shipping containers all over the world to deliver vaccines, despite the difficulty in getting those containers sent back to be used again.
The issue we're facing at this time is that all of these things have happened all at once, some feeding the other. While there are close to 8 billion people on earth, it seems intuitive that a single person is to blame for the entirety of this inflated mess. Democrats would tell you it's corporate greed that is causing inflation, which has already been dismissed out of hand by Biden's own appointee, Janet Yellen. On the flip side, a simple review of a calendar might make it hard to blame everything on the current administration, or the prior but politics isn't based on reason or data.
Blaming your political opponent might get you through the night, but it won't solve the problem any more than it will get you reelected in the midterms. What we need to do is navigate the problem, and respond where we can.
The headlines would have to believe that winter is coming and we need to rush to buy bread and overpriced milk ASAP. Most people are responding by panicking and taking a picture of their gas pumps while they drive greedily to Sam's Club for more beef. But overall, the economy is doing pretty good (please don't look at the stock market while reading this message, that's not my point). My point is that talent is in high demand, incomes are up and most people have more wealth than ever through their homes. Those who are affected by inflation most are those who don't have a college degree and can't compete for leading incomes and rent because they can't afford the premium cost of buying a home.
Inflation is not affecting most of us directly as much as we may think – regardless of how we feel when we see the pump. It is, however, affecting the bottom earners more than others. Inflation is in fact higher for the poor than it is for the average American. For the renter who has always wanted a home, but cannot save or otherwise build equity, inflation will affect them for generations.
So what do we do about inflation? I think we do this. First, we admit that the economy is doing pretty well. Then, we navigate it, prioritizing those investments that benefit low-income families. It's on us to make sure the burden doesn't fall on the poor. Let the Fed do what they do. In due time, we'll be able to correct course, resolving the detour that no one person caused, and likely no one could have prevented.