PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

KEATING: Inflation Rages On and Policymakers Don’t Get It

By at 10 December, 2021, 2:40 pm

by Raymond J. Keating – 

The latest Consumer Price Index (CPI) report from the U.S. Bureau of Labor Statistics brought more bad news on inflation.

CPI inflation raged at 0.8 percent in November, and that came after a 0.9 percent jump in October.

For the past 12 months, inflation registered 6.8 percent. (See the following chart from the BLS.)

There is no positive way to spin these numbers, to say the least. It’s bad news for small businesses, who face, for example, rising input costs, and of course, ultimately, for consumers. Also, increased inflation means in many cases higher taxes, such as with the capital gains tax, with gains not indexed for inflation.

An assortment of factors are at work here.

Continuing labor shortages and supply-chain challenges related to the pandemic and related policies have pushed prices up.

Meanwhile, the threat and realities of government roadblocks or disincentives to increased entrepreneurship and investment, namely, increased tax, regulatory and tariff burdens from the Biden administration and Congress, serve as restraints on production and innovation.

And, with the Federal Reserve, in the vain hope of trying to manipulate the economy, running unprecedented loose monetary policy for more than 13 years (!) now, combined with the circumstances of the pandemic, the table was set for a serious inflation problem – and now we have it.

The solution is straightforward. That is, rein in loose money while at the same time incentivizing entrepreneurship, investment, innovation and production via substantive and permanent tax and regulatory relief, advancing free trade (e.g., reduced tariffs and quotas), and reining in politically-driven, inefficient government spending.

Unfortunately, policymakers have been and apparently continue to be intent on doing the exact opposite.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

 

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