Food Stamp Nation and the inflation death spiral

In his most recent column, Thomas Sowell wades into the “fiscal cliff” drama with a baseball bat and sends horsefeathers flying everywhere.  He shreds the dishonest rhetoric used to sell what amounts to less than a 10 percent discount on Obama’s massive deficits, achieved through punishing tax increases, as though it were some meaningful “solution” to the debt crisis.  At the end, Sowell shifts gears and delivers some tough talk about a concept nobody in Washington is discussing right now: inflation.

Using lofty words to obscure tawdry realities extends beyond the White House. Referring to the Federal Reserve System???s creation of hundreds of billions of new dollars out of thin air as ???quantitative easing??? makes it seem as if this is some soothing and esoteric process, rather than amounting essentially to nothing more than printing more money.

Debasing the value of money by creating more of it is nothing new or esoteric. Irresponsible governments have done this, not just for centuries, but for thousands of years.

It is a way to take people???s wealth from them without having to openly raise taxes. Inflation is the most universal tax of all.

All the pretty talk about how tax rates will be raised only on ???the rich??? hides the ugly fact that the poorest people in the country will see the value of their money decline, just like everybody else, and at the same rate as everybody else, when the government creates more money and spends it.

If you have $100 and, after inflation follows from ???quantitative easing,??? that $100 dollars will only buy what $80 bought before, then that is the same economically as if the government had taxed away one-fifth of your money and spent it.

But it is not the same politically, so long as gullible people don???t look beyond words to the reality that inflation taxes everybody, the poorest as well as the richest.

To pick this up where Dr. Sowell left off, the other thing to keep in mind is that Food Stamp Nation doesn’t use dollar bills.  They don’t really use “food stamps” any more, either.  Their benefits come in the form of a “credit card,” removing the last stigma of government dependency – they get to buy their groceries with the same kind of plastic everyone else is using.  The difference is that everyone else pays their own bills.

The other benefits of Food Stamp Nation, such as the now-infamous “free” cell phones, are likewise presented as “invisible” subsidies.  The receipients don’t really know what the subsidy is worth; they never see any money change hands.  This insulates them from almost all hidden taxation – from the inflation Sowell mentioned, to pass-through corporate taxes.

Some have ruefully remarked that it would be far more efficient to hand out the entirety of the government dole as cash money, reducing (but of course not eliminating) the vast government welfare bureaucracy in favor of simple, direct wealth transfer via monthly check.  There are all sorts of reasons that’s not going to happen.  The government welfare bureaucracy does not want to be reduced; the public would react with outrage at the size of those monthly checks, since Food Stamp Nation’s benefits are often worth more than a middle-class salary; the power of government to control its dependents would be dissipated; and the architects of Food Stamp Nation do not trust their dependents to spend cash money wisely.

But one other important reason is that dependency on government programs insulates a large group of people from the inflationary effects that Sowell describes.  A good deal of the American population, extending well into what we consider the “middle class,” simply does not use money to pay for all the necessities of life.  And the further they become separated from money, the less sensitive they are to government’s efforts to sustain itself through currency manipulation.  They’ll feel it eventually, of course, but they’ll ride behind a wave of political pressure to increase their benefits enough to blunt the effects of inflation.  Weshouldall be feeling the pain Sowell describes, but several appendages of the American body politic have been economically anaesthetized.