The Greek Orthodox Archdiocese of America published a document recently called FOR THE LIFE OF THE WORLD Toward a Social Ethos of the Orthodox Church. The first few paragraphs are excellent, and there is much good in this effort. The document focuses on a number of areas, including fair wages. Quoting from the document:
Among the most common evils of all human societies—though often brought to an unprecedented level of refinement and precision in modern developed countries—are the gross inequalities of wealth often produced or abetted by regressive policies of taxation and insufficient regulation of fair wages, which favor the interests of those rich enough to influence legislation and secure their wealth against the demands of the general good… Against all such practices, surely, the Orthodox Church must insist upon equity and compassion as fundamental principles of tax policy and guidelines for fair wages… Global corporations are often able to reduce their expenditures and increase their profits by removing their operations to parts of the world where labor is inexpensive precisely because workers are desperate and local governments are more eager to attract foreign investment than to institute humane labor policies, or even to secure the most basic protections for workers.
The theologians seem to be making the case that poverty exists because the rich are not taxed enough and the government is not sufficiently regulating wages and working conditions. Low-wage countries exist because governments sell out their desperate populations by not regulating working conditions and the poor jump at the chance of any job. Government tax and regulatory failings create poverty. Conversely, the document then seems to be arguing that correct government tax and regulatory policy could create widespread prosperity.
The economic assumptions in the document are certainly open to debate. But what is not referenced in the document is even more important than what is included. The document makes no mention of practically every government’s continuous, heartless, and immoral theft of value from all workers. This theft is known as inflation, and despite its monstrous effects, theologians always ignore it.
Most people associate the word inflation with increasing prices. That is one effect of inflation, but not its cause. Prices of goods and services can fluctuate for a variety of reasons, but a long-term decline in the value of money is always caused by the government (in our case the Federal Reserve) creating more money. Money is a commodity. As its supply increases, its value decreases relative to other commodities such as food and housing.
We really need to understand the role governments play in making us poorer over time, because the United States is currently facing a tsunami of inflation.
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In August 2020, for the fifth month in a row, the supply of U.S. Dollars surged to an all-time high as a result of unprecedented quantitative easing, the Fed buying massive amounts of government debt directly, and various other COVID-related stimulus packages. During August 2020, year-over-year (YOY) growth in the money supply was at 37.56 percent. The growth rate of money has never been higher, eclipsing even the famously inflationary 1970’s.
This is all likely to end, God forbid, very badly, because inflation has consequences:
- According to the Bureau of Labor Statistics consumer price index, today’s prices in 2020 are 2,525.43% higher than average prices in 1913. This means that a dollar today only buys 3.81% of what it could buy in 1913. In the absence of inflation, we would expect that increases in productivity and technology would make us all richer over time. But that is not what happens. Increased money supply drives prices up faster over time than workers’ earnings increase. As part of a deliberate government policy, you are constantly getting paid less for the same amount of work, and your raises just help cushion the blow. Especially for lower-end workers, life tends to get harder and harder.
- Dollars are cheap in the United States because they are plentiful here. As the supply of dollars increases, Americans need more and more dollars just to survive, and so wages to attract decent workers must also rise. Would an American work for $1 an hour like his grandparent did in 1955? Of course not, but dollars are considerably rarer in many countries like China, which is why in dollar terms labor can be bought so cheaply in many places outside the U.S. As the dollar is the world’s reserve currency, countries and their workers are eager to earn them. What many Americans forget is that countries typically export to earn the money necessary to import and thus raise standards of living by providing access to a greater range of goods and services. While there are certainly other tax and regulatory dimensions to the offshoring of jobs, domestic U.S. inflation and the reserve currency status of the dollar have played key roles in encouraging, and enabling, corporations to offshore jobs. Sometimes offshoring is in pursuit of higher profits, but it can also be a matter of sheer economic survival. In the U.S., many of our most blighted areas of structural unemployment were once manufacturing centers. Those jobs departed for foreign markets, and their departure reduced once prosperous areas to grinding poverty.
- Domestic inflation drives illegal and legal immigration. Dollars are cheap here, but expensive back home. So illegals can come here, work for a fraction of what an American requires for a decent standard of living, and send dollars to their home countries. The value of remittances tops $150 billion a year and each dollar goes much further back home than it does here in the United States. Further, domestic wage demands from skilled workers encourage employers to import cheaper foreign workers via temporary visa programs. Why pay $85,000 a year for an American engineer when you can hire a talented foreign one willing to earn a lot less? That situation makes it harder for U.S. talent to find appropriate jobs, and strips talented workers from their home countries.
- Inflation drives income inequality. As one professor wrote:
In both the 1920s and the years since the mid-1990s, the underlying cause of the rise in stock and real estate prices was inflation, in the form of a rapid increase in the quantity of money manufactured by the Federal Reserve and the banking system. In both cases, this additional money entered the economic system in the stock and real estate markets, thereby driving up stock and real estate prices and creating capital gains.
That is why the Stock Market continues to go higher, even though COVID-fighting measures have tanked the real economy. Money is being poured into the economy and is pooling in assets that are disproportionately owned by the wealthiest among us. While this may not continue, as eventually rising prices may force the Fed to reverse policy and raise interest rates, for now it means that the rich will keep getting richer as their investments grow a lot faster than employee paychecks or unemployment benefits.
- Inflation makes people borrow. The Orthodox Church has never been a big fan of usury. At one point, lending money at interest was not even allowed in Christendom. But as real wages have declined and costs have risen, Americans have become increasingly dependent on debt to maintain their standard of living. Household debt in the United States tops $14.3 trillion dollars. Many things once saved for and bought with cash are now paid for via borrowing. The Social Ethos document comments on credit thusly:
If the Church truly desires to encourage social practices that reflect the love, mercy, and justice of God as revealed in Christ, it must certainly be willing to protest laws that do not protect the vulnerable against unscrupulous and rapacious creditors, and that do not provide compassionate public alternatives to unregulated or inadequately regulated private creditors for those who need to alleviate their privations and supply their needs.
What the document fails to account for is that fewer marginal workers would need “payday” and other rapacious forms of credit if their paychecks were not being decimated over time by inflation.
- Smaller shops and retail enterprises are also crushed by inflation. Just as American workers borrow to maintain their standard of living, so also do they find themselves chasing the lowest prices. Those, of course, are found at the big box stores or online retailers which offer goods manufactured largely overseas. The more Americans feel the need to retrench and cut costs, the more smaller and specialty shops feel the sting.
And everything in the list above is likely to get worse as more and more money is injected into the U.S. economy.
Inflation is not less of a sin simply because it is a matter of government / central bank policy. Inflation is a fundamental breach of trust by civil authorities. If stealing a man’s wallet is a violation of the 8th commandment (“Thou Shalt Not Steal”), then how much more is quietly stealing the value of his whole paycheck?
The neglect of the moral ramifications of inflation by Orthodox Theologians is doubly strange, given the history of Emperor Constantine with monetary reform (creating a stable gold solidus that was used, unchanged, for over 700 years) and that many of them have roots in countries previously ravaged by inflation. Theologians can’t be expected to become economists, but at the very least, they need to look at the entire picture before calling for specific solutions in a moral context. Theologians such as the authors of the Social Ethos document focus on government tax and regulatory policies that provide, at best, partial solutions to inequality, poverty, and exploitation. To help the poor and the middle class, theologians need to condemn all manner of theft, especially that which is carried out by government policy.
Alexander is a member of the Greek Archdiocese of America with an MBA and over 28 years experience in business consulting for global corporations.
EXCELLENT article. Simply commenting on tax, minimum wage, and regulatory policy is college freshman level analysis. Inflation is taught as a financial presupposition in many liberal arts colleges, so many people never question it.
Thank you for finally treating this subject