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Inflation's Undertow | The Nation

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Inflation's Undertow

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After ten years, the minimum wage was finally raised on July 24 from $5.15 and hour to $5.85 an hour. A person could have gone deaf listening to the Democrats boast about what they had done. Maybe it was the best they could do, but it was still not much.

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Nicholas von Hoffman
Nicholas von Hoffman, a veteran newspaper, radio and TV reporter and columnist, is the author, most recently, of...

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Thanks to the relentless, quiet inflation the new minimum wage will be worth almost $2 a hour less than the minimum wage was worth ten years ago. That is after the raise, not before. To equal the $5.15 minimum wage workers received in 1997, they would have to be paid $9.05 an hour. Then they would merely break even. So when politicians talk about having "raised" the minimum, they are, to put it charitably, misleading the American people.

Attention all you people with 401(k)s! This inflation stuff hits you, too. Forget the undocumented and the single parent children growing up with a flirtatious relationship to the poverty line. Let's talk about you with the retirement account.

On July 19, the S&P 500 index, designed to track the value of a wide variety of American stocks, reached a new high. (The S&P 500 stocks is a better measure of the market than the Dow Jones which only includes thirty stocks.) Sounds promising. But read what David Leonhardt wrote in the New York Times about this record-breaking occasion: "the S.& P. remains 17 percent below its inflation-adjusted 2000 peak. A share in a mutual fund tied to the S.& P. 500, in other words, can't buy nearly as much today as it could in early 2000."

Leonhardt continues, "Think about what that means. While the price of nearly everything has risen over the least seven years--while the price of bread has increased almost one-third, for instance--stocks have barely budged. They have only marginally outperformed cash sitting in a bureau drawer. So if we are going to talk about a stock market record, we should be doing the same for a whole lot of other things: "Loaves of Bread Surge to New Highs."

Whenever the subject of inflation comes up, the reader/audience is reassured by a journalist, politician or economist that "core" inflation is "contained" or "tamed" or "held in check." It is anything but. Why does Congress make sure all members get an annual cost-of-living adjustment? The fate of your savings account may be different, even if you are one of the lucky ones who gets an annual increase, often presented as raises, which in reality do nothing more than keep you even.

The distorting of the values of the stocks and bonds must be counted as a contributory cause in the growth of sometimes reckless and dangerous financial behavior. The popularity of such things as derivatives, taking corporations private, hedge funds, and some of the wilder new kinds of bonds traces back in part to inflation and the consequent search of people to at least preserve the value of their investments.

Inflation is not the result of an act of God. Inflation is a government-caused malady. As Leonhardt writes: "The price of almost everything rises over time, thanks to inflation. Each year, the federal government prints more money, which is the main reason that the price of groceries, cars, clothes and, yes, stocks keeps on going up."

The government causes inflation, in part, out of the conviction that a little bit of it is necessary for prosperity, but history teaches it ain't so. The 1950s and '60s, which saw gigantic economic growth and an almost unbroken rise in the standard of American living, was close to an inflation-free period.

Though millions are paying the cost of inflation, it is not a hot political issue, which it must be to force the government to end it. So, if you want that to change, hit the keyboards, folks, and start the e-mails flooding into Washington. Otherwise you will continue to see the purchasing power of your life savings wither away with a case of pernicious anemia.

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