Let’s talk about inflation. The problem is too urgent to ignore.
Inflation is currently a very serious problem in America. Inflation is impacting us all, with the poor and elderly hit particularly hard. As policy makers, we must address the problem of inflation.
Causes of Current Inflation
The current inflationary period has two primary causes:
- an acute cause (a foreign war) and
- an underlying long-term cause (economic tumult due to the outbreak of a global pandemic in March of 2020).
First, a definition. In its most basic sense, inflation is a broad increase in the price of goods and services. Generally, inflation can be caused either by resource scarcity, or by fiscal policy. Currently, we are facing both.
Fiscal Policy
Too many pundits blame current inflation on fiscal policy alone, and fail to acknowledge the acute impact of the war in Ukraine. Such pundits willfully disregard the rest of the story in favor of a politicized view. And yet, they’re not completely wrong. One underlying cause of current inflation is the fiscal policy put in place under the Trump administration to counter the disastrous economic effects of the Covid-19 pandemic.
Check out this chart showing the changes in the Federal funds rate over time.
The fiscal policy put into place as a measure to help the economy survive the shutdowns of the Covid-19 pandemic created an underlying inflationary tendency.
However, inflation likely would have been more gradual and less noticeable to most families, had it not been for the acute problem of scarcity, which triggered this alarmingly rapid period of inflation across market sectors.
Scarcity
Labor shortages
I’m not going to address it at length here, but it’s worth mentioning that ongoing worker scarcity is a factor impacting inflation as well. Many of the people, especially older workers, who left the labor market in early 2020 have not returned: a trend leading to labor shortages and snarls in every market sector. Increasing labor market participation could be one way to bring down the cost of goods and services. And we just might entice more people into the labor market, if we were to improve the standard of living offered by a working life. Maybe. I’m just sayin’.
Resource Scarcity
The acute resource scarcity due to the ripple effects of Russia’s war of aggression in Ukraine is one of the primary causes of the current global inflationary period.
Barron’s estimates that “the war [in Ukraine] has led to a 30% increase in oil prices… and a 17% increase in food prices.”
Russia and Ukraine together produce about a third of the world’s wheat supply. (Look at Russia on a map, it’s huge!) So when that supply is cut off, due to both the disruption of the war itself, and the trade sanctions imposed by the international community in response to the war: the remaining wheat becomes a valuable commodity.
Addressing Resource Scarcity
So if our food is becoming more expensive in large part because of a scarcity of imported wheat, what is the solution? That should be obvious. The solution is to increase domestic food production, folks.
Domestic food production
Our economy requires both cities and rural areas. Densely populated cities cultivate technological, economic, and cultural innovation which benefit the rural areas. Rural areas cultivate the food and raw materials on which the cities depend.
But rural areas often have high levels of poverty: driven in part by the seasonal and low-paying nature of agricultural work.
We’ve grown increasingly dependent on imported food products. Differentials in currency values and the cost of living in distant parts of the world make imported food products cheaper than food products grown domestically. But when our food supply depends on imports, that becomes a vulnerability.
The food supply is a national security issue. That’s why the Federal “Farm Bill” of agricultural subsidies was first created. And that’s why we need to dramatically increase agricultural subsidies right now, to combat the current runaway inflationary period.
And let’s not wait for the Federal government to do this, either. We can fight inflation locally, by increasing food production locally.
Making farming more profitable
We can increase food production right here, by making it more profitable for more people to start and operate small family farms.
That might include capital loans or grants to help new and existing farmers purchase land, equipment, seed, fertilizer, livestock, and feed. That might include programs to supplement the pay of agricultural workers; perhaps by reducing state tax withholdings on farm worker paychecks, for example. And I believe it should surely include sponsoring “farm to table” programs that provide farmers with a direct connection to markets in urban areas, allowing them to bypass the usual buyers.
Presently, the oligopoly of large grocery stores set the prices, and farmers have no leverage when they sell the food they have grown. This situation cannot properly be described as a “free market.”
The grocery store buyers force local farmers to price-match imports from other countries. This keeps the price of our food low; but at a hidden cost to our entire economy.
Low food prices keep farm profits and wages low, leading to high poverty (and poverty’s attendant meth use) in rural areas. This discourages people from engaging in farming at all.
Increasingly, instead of growing food, farmers specialize in products like hops and wine grapes: which we love in Oregon, we really do; but (to paraphrase wise words), people cannot live on booze alone. We need fruit, vegetables, bread, and meat.
An untapped market
On the other side of this equation, there are urban “food desert” areas where it is impractical for residents to access grocery stores.
Without a neighborhood grocery store, people who live in urban “food deserts” live on food from fast-food restaurants and convenience stores; and as a consequence, they tend to eat unhealthy food, which leads to health problems.
So let’s connect the two. Plug the farms into the food deserts with “farm to table” programs or local markets.
By establishing locally grown food outlets in urban areas, we could feed the poor, support the farmers, and fight inflation, all at the same time. Everybody wins!
To be clear: On its own, this proposal will not completely solve the global problem of inflation.
But it will help. It will chip away at the problem. And wouldn’t a minor improvement be so much better than continued worsening? Let’s do what we can to make it better.
So, fight inflation! Fund farms.