JOHN F. FLOYD COMMENTARY: Out of control inflation can be deadly to a country

·4 min read

Inflation is a dirty word. It even has an ominous sound.

Inflation is defined by Webster’s New World Dictionary as “an increase in the amount of money and credit in relation to the supply of goods and services; an increase in the general price level, resulting from this; specifically, an excessive or persistent increase, causing a decline in purchasing power.”

I prefer the definition my economics professor at Auburn University used. Simply stated, he said, “Inflation is too many dollars chasing too few goods.” That definition is appropriate to the present situation the United States faces.

The U.S. is facing its highest inflation rate in three decades and has Americans concerned about their buying power. The Department of Labor reported that the consumer price index increased by 6.2% from last year, the fifth consecutive month above 5%. Helping to fuel these commodity increases were gasoline at almost 50% over last year, groceries over 5.4%, new vehicles increasing 9.8% and prices for tires and recreational equipment increasing accordingly.

The Wall Street Journal in a column by Gwynn Guilford reported that Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives, “expects inflation to persist for a while, with the U.S. entering a six-month period of unusually fast price increases.”

As support for Ms. Warburton’s theory, there has been little pushback on price increases passed on to customers. Everyone seems conditioned to the present inflationary environment, which is not too bad in relation to the rest of the world. However, I can give you two examples of runaway inflation: Zaire, a country in Africa; and Argentina, a country in South America.

In 1980, I travelled to Kinshasa, Zaire, on business. We held our meeting in a conference room attended by four people, five counting a person who sat in a corner of the conference room holding a briefcase. He took no part in the meeting and I guessed he was security.

We broke for lunch and the man with the briefcase followed us to the restaurant, but, once again, he sat to the side with his briefcase. I again assumed he was security.

When lunch was finished, I found the purpose of the man with the briefcase. He was there to pay for lunch and it took the briefcase full of “Zaires,” the country of Zaire’s local currency, to pay for lunch. Inflation was so rampant, the next day it could have taken two briefcases full of money to pay for lunch.

General Tire had an operation in Buenos Aires, Argentina. On one of my plant visits, I discovered inflation was so bad, when the employees received their paychecks, they immediately spent the entire amount the same day. The inflation rate was so high and increasing, their paychecks were depleted the day they were paid.

Ms. Warburton has sounded the warning bell with her concerns about “unusually fast price increases.” Once inflation begins, especially at the rate of increase the U.S. is experiencing, just where does it stop? In addition, she said the U.S. is moving in to a new phase where things are going to get a little more intense.

There is a bright spot to inflation: It is great for state and local government. The Wall Street Journal reported on its Opinion page that “One irony of inflation is that while it’s bad for working Americans, it’s great for the government. Tax revenues soar as nominal profits and income rise, and for evidence look at state and local government coffers. Overall state and local government receipts including federal aid were 23% above pre-pandemic levels in the third quarter through September thanks to Congress’ gusher of spending and strong economic recovery.”

Is that where the City of Gadsden is getting the money to spend on superfluous projects? City government should be saving money for the rainy days ahead, when the full impact of the Goodyear closing finally hits home.

Has the city’s Finance Department done any modeling of that impact? If so, and with the situation further complicated by the inflation spiral, what are the prognostications? More importantly, will the city be on sound financial footing for the next administration?

The residents of Gadsden and Etowah County are already feeling the negative impact of inflation.

Now is not the time to be concerned with approval ratings. Out of control inflation is deadly.

Inflation is no respecter of classes. It hurts all classes, but the middle and lower classes suffer disproportionately. That is why the present inflation trend must be reversed.

John F. Floyd is a Gadsden native who graduated from Gadsden High School in 1954. He formerly was director of United Kingdom manufacturing, Goodyear Tire & Rubber Co., vice president of manufacturing and international operations, General Tire & Rubber Co., and director of manufacturing, Chrysler Corp. He can be reached at johnfloyd538@gmail.com. The opinions reflected are his own.

This article originally appeared on The Gadsden Times: Inflation hurts middle, lower classes worse

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