How Catholic Anti-Poverty Crusaders Harm the Poor

inflation
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By now, most Americans have noticed a disturbing trend: prices are going up. In some cases, way up. Last summer I built a treehouse for my kids, and I’m grateful that I did it before I needed to be Warren Buffet to afford a 2×4. And it’s not just lumber: used cars, groceries, housing (both rent and ownership), and many other items are all rapidly increasing in price. 

For upper class Americans, this is mostly an annoying inconvenience, but for the lower class and even the middle class—many of whom live paycheck-to-paycheck—rising prices can lead to some hard choices. Can I afford the groceries this week? Am I able to buy my daughter clothes for the new school year? But I’ve yet to hear one word about this issue from those Catholic leaders who most want the Church to be the “Church of the Poor.” Why is that? Spoiler: because the very public policies they most advocate are a primary cause of these price increases.

There’s no such thing as a free lunch, and when Church leaders push for yet another “free” program for the poor, they are in reality putting a greater long-term burden on those poor. For it won’t be the rich who pay for it, but the poor themselves in the form of higher prices. To understand their error, we need to understand why prices rise.

Price increases are commonly known as inflation. And for Americans, inflation has been a way of life for the past century. When you hear your mother or grandmother complain that a gallon of milk used to cost $1 and now it’s three times that, that’s inflation. Our government actually wants there to be inflation, albeit slow and steady inflation (why they want that is too complicated for this article, but suffice it to say, the government’s reasoning is suspect). 

The desired rate of inflation is 2%, and since the 1980’s, 2% has generally been the officially announced rate (there’s a lot of debate regarding whether the official rate is the actual rate). However, in 2021, the officially-announced rate (represented by the Consumer Price Index) rose to 5.37%, although it’s clear to the average American that even this higher-than-average figure is lower than their experience. One alternative indicator estimates inflation is over 8%, while another suggests that it’s over 10%. For average Americans, it certainly feels as if the alternative measures are closer to the truth.

Regardless of the true rate, the reality is that prices are increasing. But does this really matter? After all, if prices increase, doesn’t that mean merchants—not just Jeff Bezos but the owners of the local mom-and-pop—will make more money? So maybe increasing prices is a good thing.

Well, yes and no. Like most economic activities, inflation creates both winners and losers. And also like most economic activities, inflation makes the poor the biggest losers. To understand why that is, we need to understand what causes inflation in the first place.

The causes of inflation are complicated and many (such as artificially restricting supply with government pandemic measures). But when we look at the original definition of the term we can see one primary cause of inflation: money creation. For a long time, the term inflation simply meant “monetary inflation”—the money supply increased; it was “inflated.” If, for example, an economy has a $1 million money supply, and then the government creates an additional $1 million out of thin air (by “fiat,” thus the term “fiat currency” to describe government-based money), then the money supply was inflated to $2 million. (The actual current United States money supply, for those who are wondering, is, by one measurement, just north of $20 trillion.)

Monetary inflation inevitably leads to price inflation, meaning that when more money is in an economy, prices will eventually go up. To understand why, imagine an island economy of 100 people in which exists a $100,000 money supply. This money, as in most economies, is divided unevenly: some people have $20,000, some have $5,000, and others have less than the average of $1,000/person. Regardless of how it’s distributed, a hard limit exists for how expensive a good or service can be: you can’t charge over $100,000 for anything, for example, and in practice nothing can cost more than the richest person possesses.

Now imagine someone dumps another $100,000 on the island which is distributed among the inhabitants—again, unevenly. The richest person, who had $20,000 before, now has $50,000, let’s say. And someone in the “middle class,” who had around $1,000 before, now has $2,000. The price of goods will increase, because people have more money to spend. Monetary inflation leads to price inflation.

With the government trying to pump up the economy in response to the 2008 recession, the American monetary supply increased rapidly over the subsequent 12 years. And since the start of Covidtide, the amount of money dumped into the economy makes money supply charts look like a hockey stick. This has led inevitably to a rise in prices.

But whether we’re on the imaginary island or in 2021 America, why does this matter? Doesn’t a rising tide lift all ships? Not exactly. 

The problem with inflation is that typically the poor are disproportionally impacted. The rich aren’t W2 wage-earners; they have investments that rise in value somewhat proportionally to price inflation. The lower and middle classes, on the other hand, depend on their weekly wages, which usually lag inflation considerably (and many of the poor are on fixed incomes that barely budge). And while the middle class today has investments in the form of 401k’s and mutual funds, many in the lower class save their money in cash or savings accounts that make under 1% interest. They are literally getting poorer in real purchasing power every day.

Yet Catholic leaders who champion the poor are silent about the impact of inflation on the poor. Perhaps it’s due to ignorance; after all, most Catholic leaders know little about economics. The problem, however, is that not only are they silent, they indirectly advocate for rising prices by supporting big government programs. After all, how does the government pay for all those programs? One way is taxation, but the other primary way is through money creation. By pushing for more and more social programs, these anti-poverty advocates are placing the burden squarely on the backs of the poor they claim to represent. 

As an aside, the same principles also demonstrate why a universal basic income (UBI) would do nothing to help the poor. Yes, they may be given $1,000/month by the government, but so would every other poor person, thus driving up the prices for goods. So the poor’s real purchasing power—their ability to buy the goods and services they need—would remain unchanged. Ultimately, such a plan might make people feel good (and feel richer), but it would not actually help them.

Church leaders are right to advocate for the poor. As Catholics, we are obligated to help the less fortunate. But good intentions are not enough. Instead of choosing the lazy—and harmful—option of pushing for yet another expensive expansion of Big Government, we need to advocate for a more sound economy where the poor aren’t forgotten. We need to advocate for sound money, which means money supplies that can’t be inflated by fiat. This will actually help the poor. While the significantly rising prices we see today—due in part to government policies many Catholic anti-poverty advocates champion—might be a mere annoyance for the upper class, for the working class and the poor, they can begin a downward spiral into even deeper poverty.

[Image Credit: Shutterstock]

By

Eric Sammons is the editor-in-chief of Crisis Magazine. His most recent book Deadly Indifference (May 2021) examines the rise of religious indifference and how it has led the Church to lose her missionary zeal.

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