by Charles Hugh Smith
Of Two Minds
We’re getting a real-world economics lesson in rip-your-face-off increases in prices, and the tuition is about to go up–way up.
Inflation will be transitory, blah-blah-blah–I beg to differ, for these reasons. There are numerous structural sources of inflation, which I define as prices rise while the quality and quantity of goods and services remain the same or diminish. Since the word inflation is so loaded, let’s use the more neutral (and more accurate) term decline in purchasing power: an hour of your labor buys fewer goods and services of lesser quality than it did a decade ago or a generation ago.
While the conventional discussion focuses on monetary inflation, i.e. expansion of money supply, the real rip-your-face-off sources have nothing to do with money supply. The rip-your-face-off sources are scarcities that cannot be filled by substitution or globalization.
Consider skilled hands-on labor as an example. Let’s say some essential parts in essential infrastructure require welding. There is no substitute for skilled welders. But wait, doesn’t economic dogma hold that whenever costs rise, a cheaper substitute will magically manifest out of a swirl of dust? That dogma is false in cases such as skilled labor.