Inflation Fears on the Rise

Inflation fears are making headlines, and rightly so. The U.S. Labor Department reports year-over-year consumer prices rose 5% in May, the fastest rate in almost 13 years.

This is the clear result of government policy that, rather than the proverbial helicopters shoveling money out their doors, more closely resembles a never-ending stream of C-130s dumping huge payloads of dollars onto the masses below. Political liberals developed a belief after the last recession that the culprit for the stagnant recovery was too little stimulus – and not, you know, an onslaught of new regulation, greater government control over the healthcare and energy sectors in particular, and various other unnecessary wet blankets on consumer and investor confidence.

It’s an understatement to say that, given another chance, they’ve overcorrected.

Instead of taking yet another look at the soaring prices of lumber and rental cars, let’s look more locally at how federal dollars are sloshing around in Georgia’s coffers.

As it happens, this past week was also when the state revealed its revenue numbers for May. Keen observers were watching this release closely, and not only because the tax-filing deadline had been bumped to May from April. For months, the caution about surprisingly strong revenue numbers was that much of the tax withheld from unusually generous unemployment checks last year could end up flowing back out of the treasury once those laid-off workers filed their taxes. That prospect alone was sufficient to doubt whether the picture would remain rosy once it was complete.

It was a reasonable worry. But it didn’t come close to proving correct.

Instead, the state is poised to record a surplus of more than $3 billion in the fiscal year that ends June 30. This, barely a year after many feared a similar amount would have to be cut from the budget.

How much is $3 billion, in context? Consider that the state could fill its rainy-day fund to the legal maximum and still have well over $1 billion left.

Which brings us to the other gusher of dollars flowing into the state’s accounts.

Congress, in its wisdom, just as it became clear the states were in far better financial shape than previously feared, and after already sending them billions and billions of dollars, chose to send them the largest “emergency” package yet. Georgia alone is set to receive $4.7 billion. That is on top of billions more for schools and other specific uses, not to mention the additional billions (trillions nationally) proposed in federal bills for infrastructure and the like.

Granted, the state has a few years to spend the money, and it isn’t receiving it all at once. But the challenge for lawmakers will be to spend it within the restrictions imposed on them by Washington, D.C., and without stirring up even more inflation.

For example, on top of the usual considerations for spending taxpayer dollars wisely on broadband infrastructure, this scale of money brings a different problem. There are only so many companies and workers equipped to make and install the necessary materials. Try to do a whole lot more than usual in a very short timeframe – and a few years qualifies as short – and the state effectively will end up bidding against itself, driving prices higher for both public and private investments.

And remember, labor is already scarce. That may change at the margins once the extra unemployment benefits are discontinued, but the labor market was tight before the pandemic. We’re basically returning to that earlier status quo.

Now multiply those concerns across everything else the state government does, or could do with the federal largesse, as well as the inflated demand in the private sector. The price increases we see today won’t dissipate quickly, if at all. As is often the case, the poor will have the hardest time coping.

Escaping this flood without suffering numerous washouts will take some deft policymaking, locally but most especially nationally. What we’ve seen lately from Washington doesn’t inspire confidence.

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