The Cultural Impacts of Inflation
Economic data shows that inflation is coming down and has already come down significantly from the peak CPI numbers post-COVID. That’s great news, right? Inflation is coming down - or at least that’s what they’re telling us…
The reality is that we don’t need manipulated government data to tell us whether or not inflation has come down. Just look at your grocery bill each week. A bill of $100 affords us much less than it did a year or two ago.
Healthcare is astronomical. Gas prices are still elevated. Etc.
That’s the thing about government data. They can manipulate it as much as they want but when it comes to inflation, we can feel it in our own pockets.
Not only that, but over a long enough time horizon, changes within a society emerge that we’re able to observe and attribute to rising prices.
Read the tea leaves.
Inflation & currency debasement is really a social phenomenon as much as it is an economic phenomenon because it changes the activities within a society.
It bankrupts the currency but also bankrupts the society’s morals. Cultural norms are completely redrawn.
Speculative actions are encouraged in lieu of real labor in order to earn money. As inflation increases, a whole new class emerges. A class of opportunists. Those who are able to not only quickly move their money into different markets successfully, but can also seek risk for high reward.
Quick cash now instead of hard work to save. Why? Because the money is decreasing in value. People want to purchase things now in order to hedge against their dollars being worthless in the future.
This reorientation of societal actions comes at the expense of the productive class - those who work and provide utility to the economy.
This significantly changes the culture of a country. No longer are traits like time-preference, saving and living within your means favored. Instead, speculation and obsession with luxury and the frivolous prevail.
From the book “Fiat Money Inflation In France” written by Cornell University founder, Andrew Dickson White, explores the economic woes of France in the late 1700s.
“But these evils, though great, were small compared to those far more deep-seated signs of disease which now showed themselves throughout the country. One of these was the obliteration of thrift from the minds of the French people. The French are naturally thrifty; but, with such masses of money and with such uncertainty as to its future value, the ordinary motives for saving and care diminished. And a loose luxury spread throughout the country."
As a people become uncertain of how much value their currency will hold over time, they feel forced to purchase as many goods today. This is because their currency is quickly losing its purchasing power over time. Prices are inflating.
A still worse outgrowth was the increase of speculation and gambling. With the plethora of paper currency in 1791 appeared the first evidences of that cancerous disease which always follows large issues of irredeemable currency,—a disease more permanently injurious to a nation than war, pestilence or famine.
For at the great metropolitan centers grew a luxurious, speculative, stock-gambling body, which, like a malignant tumor, absorbed into itself the strength of the nation and sent out its cancerous fibres to the remotest hamlets. At these city centers abundant wealth seemed to be piled up: in the country at large there grew a dislike of steady labor and a contempt for moderate gains and simple living.
Sound familiar? Memecoin frenzy, gambling and sports betting everywhere you look. The middleclass gets hollowed out as people either rush into speculative ways to make quick money or get left behind.
All of this speculative risk-taking poses a huge risk to everyone. Buy assets or be poor.
The risk in buying stocks doesn’t become stocks going down but rather stocks shooting up quicker than you can get money in the market.
You’re just trying to stay afloat at this point.
Now, do I think we’ll have to worry about run-away hyperinflation any time soon? No. The US remains as the global hegemon and our dollar is still the reserve currency of the world.
That said, we are still seeing abnormally high levels of inflation and it will likely continue.
The cultural changes discussed in this article may not happen all at once but they will happen over time. And with each cycle, you’ll notice them more and more.
In this week’s premium portion, I want to explore this topic further and discuss portfolio management strategies in an era of inflation and debasement.