The Big List of US National Crises: Inflation

An Article of the Modern Survival Guide

You’re reading the Modern Survival Guide, a long-running blog that I’ve been writing to cover things that we all need to know to survive and thrive in the modern world. In the US, where I live, survival is an increasingly important topic. We have a large number of national crises that, regardless of your politics, exist and affect us all. We desperately need to solve, or at the very least address, these issues and so far… nope. No real progress.

In Part 1 of this mini-series, I talked about the first of these big challenges, the current political instability that is endemic in the US. In Part 2 I tackled the problems with our national narrative. This time around, we’re going after inflation.

First of all, we’ve got to get a definition out of the way, because this is a term that gets bandied around and consequently loses some of its punch. Inflation refers to an overall increase in the cost of goods over time, or if you want to put that in reverse, an overall decrease in the purchasing power of money over time. There are a lot of causes of inflation — everything from market scarcity of particular resources to overprinting money — and not all of them are ever quite apparent at any given time.

That being said, it’s important to keep in mind that inflation is an expected feature of economies like ours that rely on fiat currency,¹ and is incredibly useful for the purpose of using debt as an economic tool.² There is a reason why fiat currencies dominate the world market, and why the gold standard failed. Modern credit markets depend on inflation and would not survive without it, and these same credit markets are entirely necessary for our current economic system.

That’s as may be in theory, but in practice inflation in the US has started to create major problems in our society. To put that in clearer terms, inflation and the credit economy in the US have, over the past forty years or so, done the following five things:

1. Created an economy where an average worker cannot support a family on their own, necessitating that both partners in a nuclear family have jobs (with concurrent problems managing childcare, which is a major factor in the declining birthrate).
2. Helped to create an extremely dangerous wage stagnation situation.
3. Precipitated major rises in the cost of consumer goods, to the detriment of people on fixed incomes.
4. Precipitated major rises in the cost of large purchases (college education, home ownership, etc.) to the detriment of everyone.
5. Created perverse incentives in investment, which encourage investors to push money into debt purchases and similar parasitic financial instruments, rather than investments which promote productivity, which increases the wealth gap.

And probably a bunch of other things I’m not educated enough to recognize, but frankly these are enough to warrant the #3 spot on this list of national problems. Because, if you read between the lines, what we actually have here is a situation where we are living in an economy that is increasingly in danger of seizing up because it is, metaphorically, standing on its own foot.

This is a big problem. It affects you, me, and everybody else, it’s happening all the time, and the bits and pieces of our economy that are especially sensitive to inflation have been sending up smoke signals for years now — because they’re on fire.

Let’s go through these problem areas, and then I’ll offer my incredibly naïve thoughts on how we can start to resolve this mess.

#1: The Necessity of Two Working Adults

This is a big one, because it helps explain another national crisis (the declining birthrate). Most families require both adults to have jobs in 2022. Now, there are a lot of theories about why we have to have two working adults in 2023 to support a household, but the simple fact of the matter is that wages have not kept up with inflation and this is the situation on the ground. This is a big problem, for two main reasons.

The first is that it actually increases financial insecurity in most households, since either adult losing their job creates a major economic problem for the household (as opposed to a situation where one adult could lose their job, and the household could survive on a secondary income). It’s worth remembering that most US households have savings of $1,000 or less to provide for a rainy day.

The second is that it makes women choose between children and a career, and consequently raises the cost of childcare when they inevitably have to choose “both,” and hire someone to watch the kids. This is the reason why you can’t afford daycare; supply and demand are quite clear on what happens when limited supply meets huge demand for specialist service work like this.

Please be clear: I am not a misogynist, as my other works on this site should make incredibly obvious. I have no problem with women working. I have a big problem with both partners having to work in order for a household to support itself, simply because our society wasn’t and isn’t adequately set up to allow families to survive on a single income. Which ties in neatly to our next point…

#2: Wage Stagnation

When we talk about wage stagnation in this sense, I’m referring to the fact that, adjusted for inflation, up to the year 2022 the actual purchasing power of the average American’s wage either stayed flat or decreased over the last forty years.

Why is this inflation’s fault? Well, it’s a combination of things, and inflation is one of them, the others being the general decline of labor unions, globalization, corporate monopsony power, automation, the rise of upper management pay, and the prevalence of credit.

That last point is particularly important, because it’s the bit that has prevented things like an increase in union membership, mass riots, or government policy changes in response to stagnant wages. It is common knowledge that, when given a choice of options, most people will take the option that gets them their preferred outcome for the least effort. Credit has been that option for decades, and consequently the average US household debt has exploded over the past forty years.

Again, it is worth noting that this is a feature, not a bug, of a fiat currency system. The whole idea is to make credit affordable and unleash the accompanying economic possibilities, which, to be fair, have been very obvious. The problem here is simply that people will only change a system when it starts seriously hurting them. The credit market’s impact on the average person has been insidious enough that all the other causes of wage imbalance have been allowed to fester because, well, people could still get what they wanted in their lives by putting things on their credit card.

Regardless, wage stagnation is a big problem. It’s decrease the average American’s ability to do, well, everything. It’s increased the debt load on the average household, and it’s consequently increased the entire economy’s vulnerability to system shocks (read: price increases). None of this is good for anyone except the companies that benefit from low-paid labor. And if you think they’re passing those savings on to you, the consumer, I have a bridge to sell you — companies pass costs to you, not savings. Savings are profit. Profit goes to the shareholders.

It should also be noted at this point that there is very little empirical evidence that higher wages actually cause inflation. Practically nothing in economics is so simple that you can explain it with a single causal factor, certainly not inflation.

#3: Eternally Rising Consumer Goods Prices

This is one of the big current problems with inflation, and it plays off of the previous point. The average consumer’s real purchasing power has been flat for decades, but artificially increased due to credit markets. However, the cost of goods is not wholly determined by how much money consumers have available; in a world dominated by the price of oil,³ for example, the price of a barrel directly correlates to price increases across the board, irrespective of consumer purchasing power.

What I’m getting at here is that big economic shocks are very dangerous in an economy that survives solely on credit, because rapidly rising costs can and do exhaust credit reserves at extraordinarily inopportune moments.

Now here’s the catch: under normal circumstances we expect prices to go back down after an economic shock. And they usually do. But they never quite go back to where they were. Consumer goods slowly rise in price over time, because inflation is a thing (again: a feature, not a bug), credit is a thing, and corporations have to stay in the black.

This is only a big problem in a world in which people haven’t overleveraged their households⁴ and in which wages haven’t kept up with inflation. Unfortunately we live in that world. Otherwise, system shocks and slow increases in consumer prices are annoying but manageable.

The overall increase in the cost of consumer goods is, of course, especially bad for people on fixed incomes, which is to say the majority of American seniors. Grandma’s Social Security check does not track with inflation. There are a lot of reasons why, many of them having to do with the cost of the program, some having to do with Congressional inaction, which we won’t get into here. But the simple fact is that, if you’re old, inflation is your worst enemy. And folks, most of us are going to be old for quite some time. That makes the steady rise of prices a national problem.

#4: Rising Costs of Big Things

For the next couple of points, keep in mind that inflation and the credit markets are joined at the hip; one doesn’t make sense without the other.

Over the past few years, we’ve seen extraordinary rises in the price of Big Things: specifically things like houses, healthcare, and college degrees. Why? Well, the short answer is that inflation has hit these sectors hard due to bad policy choices.

The housing market has been subjected to a speculative period unmatched in recent history primarily due to the insanely low cost of credit over the past decade. It took awhile to build up steam, as the various mortgage markets competed their way to the bottom, but in 2020 and 2021 the price of housing skyrocketed. A lot of that was due to the fact that corporate interests were buying up all the houses, and still are. A lot more of it was due to pressure from the pandemic. But it wouldn’t have been possible without the credit markets being where they were at the time, which enabled the feeding frenzy.

The college degree market has suffered a similar inflationary period over the past forty years, primarily due to federally-sponsored, guaranteed loans, which people have only been able to afford thanks to a loose credit market. Look, this one is simple supply and demand, if you have huge demand and limited supply, prices are going to go up, and go up they have.

Same issue with healthcare. We’ve seen extraordinary price increases over the past forty years in the American healthcare system that have not, in any sense, tracked with peoples’ actual wages or even available credit. Why? Well, again, the US healthcare system is primarily a for-profit enterprise (even when the hospitals in questions are ostensibly “non-profit”), and supply and demand only have one thing to say about a situation of near-infinite demand and limited supply. Every one of us will need healthcare at some point, and if it’s your money or your life, most people will hand over the money.

The point is that we’ve seen enormous inflation in critical areas that we all have to have to survive. We have to have a house, or at least a place of residence, to do absolutely anything in the US, never mind having a place to rest our heads at night. We have to have a college degree to get most jobs — even jobs that in no way should require a college degree. And of course, all of us will inevitably get sick at some point and have to access the US healthcare system — sometimes at very short notice. That’s a “when,” not an “if.”

These things are scary because they are huge contributors to the rising income inequality problem in the US, and that’s something that should legitimately concern anyone who doesn’t want to see riots in the streets in the near future.

#5 Perverse Incentives, or, How to Make $10 Million Fast

In a system in which you know your money is going to lose value every year, all of us are strongly incentivized to invest our money. Savings accounts are no longer a viable option. We all have to be making at least 3% every year, or the money we have effectively dwindles away.

Thus, investment in the stock market is now required if you want to keep the value of your hard-earned cash. We’ve exchanged a system of certainty for, essentially, a casino. It’s a casino with a fairly predictable return, over the long run, but that doesn’t help you much if you wanted to retire this year. And if you aren’t in the market, you’re kind of screwed.

Knowing that, here’s a quiz question for you: what is the fastest way to make $10 million in America? Is it to work for a company? Is it to start your own company? Or is it to invest in very specific segments of the stock market?

If you chose the third option, congratulations, you are correct. If you had to take a moment to finish laughing after reading the first two options, that is also correct. The easiest way to make money fast in America is to invest in the stock market — but not in index funds or in any common corporate stock. No, the easiest way to make a lot of money, very fast, is to buy debt.

Now, here’s the thing: this strategy benefits the rich more than anyone else in our society. The average person cannot leverage enough cash to buy enough debt for it to matter, because while you can get involved in day-trading collateralized debt obligations⁵ and things of that nature, the money is in buying huge chunks of corporate debt, conducting a hostile takeover, and then selling off the company.⁶

This is something that only wealthy people or corporate entities can do, and it’s something that they do all the time. Now here’s the catch: this type of action benefits hugely from inflation, because typically these groups are leveraging their own debt to do these types of things, and thus they benefit from favorable credit conditions, which is what inflation is all about in the first place.

This is also why the rich get richer no matter what economic conditions exist. If your main source of income is buying debt, a recession is great news for you! Why? Because more people go into debt in a recession. Then you buy their debt. That’s an endless profit stream, if you’ve got the cash to pull it off, which, by definition, the rich do.

Earlier I called this a perverse incentive. All that means is that an incentive exists that is prompting someone to do something that isn’t beneficial to themselves, others, or the overall system. In this case we’re talking about the latter. This type of stock market activity doesn’t actually benefit the economy. No increase in production comes from this (usually quite the opposite). No wealth is generated by this type of investment. This is parasitic action — a wealth transfer. And that, when taken to extremes, which it has been, is a big problem.

Wealth transfers are how you get things like communist revolutions, and revolutions, contrary to the US experience, are often bad. It’s usually better to fix a system than to burn it down, but when you have huge masses of impoverished people with a grudge, “burn it all down” is typically their preferred action. We should probably work to avoid that.

Is There a Solution?

Long story short, inflation has led to some very poor outcomes over the past forty years in this country, and is a current contributing factor to instability in the US economic and political systems.

Translation: everything constantly getting more expensive leads to unrest when wages don’t keep pace, and big wealth imbalances historically set the stage for resentment and violence. These are, historically speaking, bad things.

Now for the question — is there a solution? And if so, what is it?

Let’s hit the elephant in the room first: we’re probably not going to stop using fiat currency. It’s simply too useful as a monetary tool. The problem with using an asset-backed currency like gold is now and has always been that there isn’t enough gold (or whatever) to allow for flexible economics. As long as you have an expanding population, you need an expanding economy, and that becomes increasingly hard if you have a set monetary supply.

No, asset-backed currency is out. It had its time in the sun and was found wanting.⁷ We’re stuck with fiat currency, probably until we make a transition to a scarcity-free economic system at some point in the future.

Similarly, we’re not getting rid of the aggressive credit market anytime soon. It’s simply too damn useful to have a large degree of liquidity⁸ in the economy. That means we’re stuck with inflation.

This all means that we’re probably not going to benefit from a systemic, easy solution, and if anyone tells you they have one, they’re most likely lying. No, our most likely solution is to tackle the various problems of inflation piece by piece.

Fortunately, if you break down any big problem into small enough little problems, some solutions do start to appear at the policy level, which is where most of the problems start anyway. Never let anyone tell you that politics and economics are independent — politics always drives economics. There are things that we could do as a society that could, potentially, blunt the worst effects of inflation. Here are some of them, tracking against the problems we identified earlier:

1. On Living Wages: Set a standard for a Minimum Livable Wage — not a minimum wage — which is tracked against both the rate of inflation and the average cost of rent, and calculated to allow someone to afford to actually, you know, live. You’d have to roll this kind of thing out slowly, given that our entire economy is set up to milk workers dry.
2. On Stagnant Wages: Require raises — either by legislation, union activity, or personal demand — to keep up with inflation. This is absolutely necessary to keep from falling into the same stagnant wage situation again in forty years’ time, assuming we “fix” the problem now.
3. On Consumer Goods Prices: Set and enforce price-gouging laws, and set limits on speculation tied to national crises. This is not something we can actually do locally within the US and expect success — this is a global problem, and will probably require a global solution. But that’s why God made international trade agreements and the G20.
4. On the Big Purchases: Set up universal healthcare (it’s fucking well past time). Require state schools to track their tuition increases against inflation, not against their desires for more stuff (if they want more stuff, they can go ask their legislators); private schools can and will continue to do what they want, but someone has to be able to ensure affordable education. And clamp down on mortgage rates to maintain a stable market while also making it blatantly illegal to use algorithm-based rent models.⁹
5. On Perverse Incentives: For God’s sake, regulate Wall Street. Here’s a good starting point: if a financial instrument goes more than a couple of steps beyond just buying a stake in a company, it’s probably stopped being an effective tool to promote productivity and started being an extractive implement. If it’s an extractive tool, we don’t need it in society, and we should make it illegal. On a societal level, money is about encouraging productivity. The moment we lose sight of that, we’ve lost the field.

And those are just my admittedly largely uneducated thoughts. People who are specialized in this stuff need to weigh in, and they’ll probably tell me I’m wrong, but then they damn well need to offer a solution set of their own.

Is any of this going to stop inflation? No. That’s not the point, and never has been. The point is that inflation is creating a whole slew of truly nasty economic and social problems which we haven’t adequately dealt with, which are causing big problems.

Folks, that’s what modern survival is about — figuring out the big problems, and at least starting the conversation about fixing them. Inflation isn’t going to mug you in a back alley; it’s not that kind of immediate threat, which makes it all the more dangerous. Inflation will drain your wallet insidiously, over years, until you wake up one morning unable to afford to put gas in your car, and wonder how you got there.

Let’s not be that guy. Let’s put pressure on our business leaders, congressmen, local legislators, and influencers to fix this problem now. Or we will just watch as the rich get richer and the rest of us get left behind.

If you liked this article, check out the Modern Survival Guide, Volume I, and my current work on Volume II! It’s an utterly random assortment of things I think people ought to know; there’s something in there for everyone.

¹A currency that is backed by the power, prestige, and economy of a nation-state or other organization, as opposed to a resource like gold or silver. Look, before we go much further it’s a good idea to realize that any monetary system only works because people think it does, and do away with notions that there’s any such thing as a “natural” value for any kind of currency.

²Because it means you can take out debt with “expensive” money and pay it back with “cheap” money, provided you have an adequate supply of money. This is why it’s a feature, not a bug, of fiat currency economies — inflation increases incentives to take loans, which increases the amount of cash in circulation, which increases economic activity, in theory. It also means that a central bank can relatively easily regulate the speed of an economy (and therefore hopefully mitigate economic crashes) by controlling borrowing power by controlling the supply of money and the rate of inflation, in theory. In actual practice it’s not that simple in either case.

³Keep in mind that almost everything is oil right now. I mean that literally. You’re likely reading this article on a plastic screen (made from oil), typing on a plastic keyboard (made from oil), sitting in a house with oil-based paint on a chair made out of oil-based synthetic fibers. You drive to work in a vehicle that is mostly made of oil products, burning an oil product to fuel it. You eat food grown with fertilizers derived from oil. Oil is in absolutely everything, everywhere.

⁴Which is to say, taken out too many loans.

⁵For those who don’t remember what this is, this was why we had the 2008 recession. You can purchase debt bundles that throw multiple loans together into a single financial package, theoretically limiting the risk to an investor. Of course, that depends somewhat on knowing whose debt is in the package, and on not having a huge system shock that knocks all the borrowers on their ass, and on being able to actually track the debt. All of those things went wrong in ’08, and have not been fixed in the markets since. You should be nervous about this.

⁶In other words, buying up huge stakes of a company’s debt, then demanding seats at the table by getting on the board of directors and/or installing new C-level personnel. This is also called a leveraged buyout. Then you sell the company.

⁷And no, we’re not transitioning to Crypto anytime soon. That technology has all of the problems of asset-backed currency and private currency, which is to say it’s simultaneously both inflexible and of questionable legitimacy.

⁸Available money, or the ease with which commodities can be sold.

⁹For those who are unaware, most rental companies in the US use algorithms to track their price against the price of their competition, with the goal of keeping all the prices in a given area roughly equivalent as a blatant check against competition. If this sounds illegal, it probably it — and if it isn’t, it damn well should be.