The American Empire’s Survival Hinges on Inflation Battle

It is tragic that the most ancient and important rule of economics is repeatedly forgotten and is only remembered upon disastrous pain and suffering. Long before Keynes, Friedman, Fisher, or Smith, it was understood that recklessly increasing the supply of money through debasement/money printing leads to inflation (an increase in the general price level of goods and services). This rule is so universal because it is inherent to developed human society. Developed societies require a medium of exchange, and this medium of exchange’s supply must grow in pace with the productivity of society; when it grows too fast -which occurs under reckless debasement/money printing-you encounter the age-old proverb “too much money chasing too few goods”.

Its understandable why humans have a selective memory when it comes to this rule; the short-term benefits are too tempting. In the short-term, debasing and printing money works, it provides governments more money to increase its power, deal with crises, or satisfy the masses with more resources, all without having to increase taxes. Of course, as is often the case when things appear too good to be true: they are. Over the long-term these benefits disappear and can be replaced by irrevocable damage. However, in the face of temptation, humans’ memories go blank, and they indulge in mental gymnastics to convince themselves that “this time it will be different”.

The stakes for repeating this cognitive error can be quite high. For example, persistent, unconquerable inflation was one of the causes of Rome’s downfall, which was one of the-if not the- greatest empires known to man. Although emperor Nero thought he could debase the currency without causing inflation, he was wrong, and set the precedent of debasing and causing inflation when “strapped for cash”. From Marcus Aurelius on, the emperors of Rome consistently fell to the temptation of getting more money by debasing the currency. In line with these debasements, prices skyrocketed. Although a few emperors tried to remedy the situation, the damage done by successive emperors was too difficult to undo. By the late Roman empire, inflation left the economy completely defunct, precipitating the Empire’s collapse.

Therefore, how is Rome’s modern-day equivalent-the United-States- faring with this ancient challenge? Although not a physical empire, America is certainly an empire of global influence and control. To America’s credit, from early on it has been conscious of the historic temptation of debasement/money printing. The establishment of an independent central bank mandated with keeping inflation low reflects such. However, as of late it has become clear that even this safeguard can be insufficient. In the last 15 years the Federal Reserve has engaged in money creation in gigantic proportions. First, in response to the financial crisis of 2008, and then serving as life support for the economy’s self-induced COVID-19-coma. Consequently, inflation is now rampant.

People will convincingly argue that these forays into modern day debasement were justified considering the crises to which they were responding. Although this may be true, it is nevertheless the case that “solutions” of this nature can themselves have serious, long-term consequences. For instance, many debasements during the Roman empire were done for just reasons, such as to defend the empire from invasion; they nevertheless contributed to the decay of Roman society.

Thus, the damages of having the printing presses on overdrive-metaphorically speaking-must be mitigated; we want to avoid a situation such as Rome’s in which it becomes largely too late to save the economy. First, this means, now that the COVID-19 lockdowns have ceased, ending de facto money printing, and reserving it for only the most serious of emergencies. This entails policy makers candidly admitting to the public that monetary policy, and thus the government, is partly to blame for the obscene inflation currently being experienced. Without such an admission, people may forget the most ancient of economic rules, and this forgetfulness will set the foundation for further, less-justified money printing.

In light of this, it is quite concerning that many politicians and central bankers are so hesitant on doing so, and instead use the Ukraine conflict, corporate-greed, and supply-chain issues as scapegoats. Although these are all factors affecting inflation, it is ridiculous to suggest that the Fed’s balance sheet inflating like a hot air balloon had no effect on inflation. However, some of the west’s most influential politicians are doubling down on this ridiculousness. This is exemplified by the Biden administration’s insistent use of “Putin’s price hike” as a shield from inflation criticism, and other members of the left’s complete focus on “greedflation”; these same “leaders” have voiced no concern over the Fed’s influence on inflation.

Second, this means refuting horrendous attempts to justify reckless monetary policy. In other words, Modern Monetary Theory (MMT) must be considered treasonous. “The central idea of modern monetary theory is that governments with a fiat currency system under their control can and should print (or create with a few keystrokes in today’s digital age) as much money as they need to spend”. Proponents of MMT acknowledge that this could “theoretically” cause inflation, but that this is unlikely, and government can fight it with policy decisions in the future if required. Unfortunately, as Roman emperors and modern policy makers could attest to, persistent inflation is a serious problem, and remedying it is not as simple as the government flipping a switch. Thus, the air must be sucked out of MMT’s lax approach to inflation before it spreads and leaves American inflation beyond repair.   

The failure to take these steps will be disastrous. If we follow in the footsteps of many past societies and forget the cost of deviating from the age-old rule of economics, the decay of the American empire will be guaranteed. By the “American empire” I mean America’s global sphere of influence, and since America is the globe’s hegemon, I also mean the current global order. And if this global order decays, the ensuing global order might be in the hands of nations not so favourable to human rights, the rule of law, and democracy-i.e., China. Thus, America’s ability to get its financial house in order is not only a concern for Americans, but rather for anyone who is invested in the current global order.

Featured image, Selbst digitalisiert, Public domain, via Wikimedia Commons