It was 1990. Jan and I were in Peru adopting our daughter through Catholic charities. On Sunday polling day, people voted angrily as they tore up their change and piled shreds in the streets. Our future 5 year old daughter was delighted. She collected the pieces in the streets to glue them together for her mother, who was nowhere to be found.
Every morning the person from our accommodation would come by and give us the exchange rates around the corner so we could rush to the store, join the crowds and get the necessary supplies before the prices went up later in the day.
For those who live hand to mouth, inflation is a cruel tax. If one relies on fixed incomes, such as pensions and the minimum wage, inflation erodes the ability to survive day by day. It also causes irregularities. For example, those who cannot afford new vehicles will increase demand – and therefore prices – for used vehicles.
In West Virginia, workers were once employed in large numbers in glassmaking, steelmaking, chemical manufacturing, and coal mining. These were unionized jobs, and at the time union contracts included COLA clauses – cost-of-living adjustments – to mitigate rising costs of goods and services. People were very attentive to the consumer price index.
Any decline in real income hits low-income people hard, as they use most of their income to cover living expenses. Inflation is therefore equivalent to a regressive tax that does not hurt the richest as much. The wealthiest get tax breaks or own stocks that usually rise in value during inflation, as they do now. The Federal Reserve notes that the richest 10% own 88.5% of the shares.
While inflation can occur due to price increases during supply shortages, it more often occurs due to market control or an excuse when an opportunity presents itself. To counter this, there may be ways to promote competition or increase the availability of goods. In addition, COLA adjustments could be added to the minimum wage and other income programs received by workers. There is also a proven income redistribution alternative.
Raising taxes on the rich who have taken a disproportionate share of the economic system for the purchase of luxury goods would reduce their money supply or at least pay for redistribution, such as funding stimulus programs.
If well designed, these actions would improve the recovery and create a higher demand for local goods and services.
Oddly, political leaders want to cut benefits for those who have the least and have been significantly affected by the pandemic. The consequence is to reduce their income and prevent a full recovery. It is not envisaged to reduce the benefits of the rich by raising their taxes as a means of redistributing income and reducing the risk of inflation caused by their excessive demand.
Those at the top, as well as the Federal Reserve, the US central bank, express confidence that inflation is “well entrenched”, meaning that modest inflation will be more than countered by a drop in the unemployment rate. They say more people working will mean more money in the household, which then means price increases are not a concern.
However, this thought does not take into account recent human behavior. The rush to buy toilet paper and gasoline are recent examples that many Americans have little confidence in the system right now and think everyone should be careful of themselves. Even those we were ransomed to reopen the coastal pipeline demanded the cryptocurrency bitcoin, not dollars.
Soon after, bitcoin also lost value.
Money has a unique characteristic. When issued by the government, it is legal tender. This means that it must be accepted by another party for a debt or a purchase. In case of refusal, the debt has no legal basis to be paid.
In addition, prices can easily increase to cover projected or imagined cost increases that occur in the production chain.
Once the cycle has started, it is difficult to counter, especially as items are increasingly controlled by monopolies or oligopolies that have no incentive to compete.
Time Dollars are another alternative to traditional currency. They use a bank of working hours. People have skills that can be traded, like bartering, except in an organized way involving the trading of time tokens. Edgar Cahn, a retired professor at the District of Columbia Law School, developed such a system.
Time Dollars are used to generate social capital and pay people in a currency that allows them to trade an hour of their time for an hour of someone else’s time. People earn Time Dollars by helping others. In essence, the repayment obligation is based on a moral standard of reciprocity rather than a legal standard of coercion. It is outside the realm of the Internal Revenue Service, outside the free market economy and outside the pressure of inflation.
Time Dollars are a concept to consider as the need to survive increases and the use of traditional money and cryptocurrency is no longer useful due to inflation and market fluctuations.
John David is a contributing columnist for Gazette-Mail.