Hello friends. A warm welcome to new readers and subscribers. I am glad you are here!
Inflation has been widely accepted as a normal global phenomenon, the pernicious idea that prices of goods and services increase over time or likewise that the value of money decreases over time. Whilst many know and talk of what inflation is, few know and talk about the unbiased, true perspective of this phenomenon.
Today at a glance:
The case for inflation as the most regressive hidden tax the people pay.
The purpose behind governments’ need to collect revenue and expend it under operational and capital expenses has evolved over time, although the nature of this operation has not.
Back in the 19th century, led by the US, governments collected taxes to fund wars, deploying funds across operational and capital war-like expenditures to protect what was ‘theirs’ and take from others what was not.
In modern society, governments earn and spend to optimise for socio-economic stability and growth with a lot of centricity around people (both natural and those that are not - companies in their different forms).
As people, we pay taxes to the government in different explicit forms in order for the government to go through with its socio-economic optimisation mandate.
Suppose a government (hypothetically) makes R2 million from its tax receipts and spends R1 million to optimise for socio economic stability and growth in one fiscal year. They are left with a surplus of R1 million to use for the next, however in the modern regime, that is a bit utopian as governments do not make as much as they spend. In fact, they spend more than they earn.
(see the graph at the end showing the budget position of the two biggest economies ;USA and China, and South Africa. You will notice, expressed in percentage form, the budget is ordinarily below zero; negative)
At the intersection of widely accepted and respected needs of people and mostly exaggerated promises governments make to people, they end up with a spending budget more than what they expect to earn. What do you suppose happens then? These are the institutions that have access to the currencies we use as money. Debt instruments are created which are akin to ‘printing money’ to meet the spending needs and promises. Normal operational and capital spending occurs , but with parachuted money.
People start to feel and see the new money through the system. They spend more and prices begin to rise as supply has yet to catch up to the new demand. Bread increases from R15 to R18 at the local shop, so do the eggs inflate and the milk as well.
What do you fancy the R3 increase is? From one end it is the extra debt funded spending the government made and from the other, the increase in prices of goods and services, the devaluation of money; inflation, more frankly, the hidden tax imposed (consciously or not) by those charged with governance on the people.
‘The real tax on the American people is not what you label taxes’_ Milton Friedman
Talk to you soon.
-Kusa Nkosi
