Exit polls confirm that the economy and inflation specifically were the biggest reason for voter dissatisfaction with the Biden-Harris administration, leading to Donald Trump’s election. While the economic perils of inflation have been well-documented by economists and media pundits alike, less widely understood are the political and moral consequences of unchecked inflationary policies like those that helped usher Trump back into the White House.

Almost nobody likes inflation. Unless you are a well-timed speculator, it lowers your standard of living, and it is especially hard on blue-collar workers and retirees. It is commonly the result of deficit spending, which can take the form either of direct giveaways to blocs of voters or of “tax expenditures.”

The most common type of tax expenditures are subsidies in the form of tax exemptions given to favored groups and activities – such as were included in Biden’s so-called American Rescue Plan and the absurdly misnamed Inflation Reduction Act. The energy tax provisions of the latter alone will cost the Treasury $622 billion over the next seven years according to the Congressional Budget Office.

By flooding the economy with extra cash, thus raising the demand for (and hence the price of) goods, along with liberal monetary policy, such as the Federal Reserve was following in the early years of the Biden administration, governments generate inflation.

Inflationary policies remain a constant temptation for governments because they are typically an effective means of “buying” votes. That is, citizens are delighted to receive extra cash from Uncle Sam (subsidies for selected businesses, student loan cancellations, increased welfare benefits), without taking account of the inevitable costs in the form of higher prices.

Thus, even in the wake of inflation crises such as the U.S. endured over the past four years (the worst since the 1970s), liberal economists are always ready to take chances with promoting a resurgence of “moderately” inflationary policies, believing that they won’t pose major risks.

Hence The New York Times’ personal finance columnist Jeff Sommer, who tends to offer conservative (that is, non-risky) investment advice to individuals (buy index funds, balance your stock and bond investments), in a column this month warns that in continuing to focus on battling inflation, “The Fed Is Stuck Fighting the Last War.” Noting that “before the recent battles with soaring prices, both the Federal Reserve and the Biden administration had begun experiments aimed at ensuring that economic growth was robust and equitably distributed,” he adds that “even earlier,” back in August 2020, the Fed had made a “significant, though subtle, adjustment to its approach to monetary policy.”

Specifically, the Fed had replaced its longstanding goal of two percent annual inflation as a “hard target” with one aimed at combating excessively low inflation no less than too-high inflation, with a view to averaging out the two over the longer term.

But according to Sommer, even the two percent target itself may be unnecessarily “warping” monetary policy, in the view of “some economists,” by risking the occurrence over the long run of “more frequent recessions” and hence higher unemployment. For that reason, Sommer cites Johns Hopkins economist Laurence Ball as recommending that the Fed, once consumers’ fixation on recent inflation subsides, raise its target inflation rate to three or even four percent.

Three days after Sommer’s column appeared in the Times, Fed chair Jerome Powell, as expected, announced a half-point cut in interest rates, raising the total cut in recent months to a full point – even as the latest monthly inflation rate has risen to nearly 3 percent. Powell is reportedly under pressure from President-elect Trump to cut rates a lot further so as to stimulate the economy.

Admittedly, Powell balanced his announcement by adding (to the disappointment of market speculators) a likely reduction in further rate cuts in 2025, apparently recognizing that inflation remains a threat. And one must add that since it is impossible for the Fed to precisely ensure a desired inflation rate, there is some reason to sympathize with Powell’s current moderation. The opposite of inflation, deflation, is also a problem to be avoided, as continuing declines in a currency’s value unduly discourage consumption and investment.

But it is one thing to try to maintain a low (one to two percent) inflation rate, expecting that rates will sometimes briefly and moderately rise higher (or lower), and another entirely to follow Ball’s and Sommer’s recommendation to pursue a higher inflation rate as a long-term goal.

To begin with, one might wonder why the government should aim at securing even a two percent level of inflation. Bear in mind that inflation is a form of disguised taxation: lowering the value of people’s savings and earnings every year, leaving them with just the hope that by pursuing higher wages, prices, and after-tax returns on their savings, they’ll be able to make up the difference. Inflation serves the government’s purposes only through the creation of “money illusion,” or the expectation that as the nominal value of people’s earnings and savings rises, they will feel richer. Hence those people will be more inclined to spend money, and thus promote employment – even though the resultant growth of inflation will leave most people no better off, financially (and many, unable to raise their receipts to keep pace, inevitably worse off).

In response to this theory, espoused most influentially by John Maynard Keynes, we must ask: would it not be more conducive to employment and business prosperity to encourage people to save and invest, with greater confidence that their money will grow in real value? Business investment, after all, rather than government spending, is typically the real key to prosperity for all – as was demonstrated most recently by the rise in employment achieved under the first Trump administration thanks to the 2017 Tax Cuts and Jobs Act, which also saw record low unemployment for blacks, Hispanics, and many other minority groups. Why should ordinary citizens want government to lower the value of what they possess?

Moreover, history shows that neither governments nor economists are able consistently to confine inflation, once it has been launched, to a desired target. Rather, beyond a low level, inflation tends to spiral, as citizens feeling the pinch of higher prices keep demanding ever-larger subsidies from the government to meet their needs.

Not only economic but political chaos has resulted, as recently seen, for instance, in countries like Argentina and Italy. Both of those nations are just now experiencing the installation of reformist governments determined to halt the spiral – though their capacity to remain in office long enough to achieve that end, given the short-term pain that voters will feel as government giveaways are cut back, remains to be seen.

Recent history offers far more extreme levels of “hyperinflation,” notably in Zimbabwe. Owing to rampant government corruption, including the confiscation of white-owned (and typically more productive) farms, inflation there rose to astronomical rates of 586 percent in 2005, 25,000 percent in 2007, and a mind-boggling 89.7 sextillion (8.97×10²²⁾ percent in mid-November 2008, clearly making the currency unusable. Following a temporary reversion to reliance on foreign currencies, the problem has not been solved following the issuance of a replacement currency.

Nobody expects anything like the Zimbabwean example to be imitated in the United States. But a culturally more relevant, albeit just as extreme, case is that of Weimar Germany in the 1920’s.

Whereas before World War I the exchange rate between the Reichsmark and the American dollar was just over four marks to the U.S. dollar, by 1920 the value of the mark was 16 times less. By July 1922, prices had risen some 700 percent, and soon the German government had to print million-mark notes, then billion-mark notes, with one dollar then equal to a trillion marks.

The consequence was the economic ruin of millions of families, food shortages, and riots as farmers refused to sell their produce for worthless money, contributing to the loss of respect for democratic government and the resultant growth of extremist parties (Nazis and Communists), culminating in the rise of Hitler and his promise of “order” and renewed national greatness.

Without wishing to suggest that an increase of inflation by two or three percentage points in the U.S. contains with it an imminent danger of such dire consequences, there remain very real moral risks of an inflationary mentality. These have been well-explained by the late, distinguished literary scholar Paul Cantor (who was also an exponent of the “Austrian” school of free-market economics of Ludwig von Mises and Friedrich Hayek) in a brilliant analysis of Thomas Mann’s little-known story “Disorder and Early Sorrow,” composed and set at the peak of the Weimar inflation.

Mann’s story, Cantor observes, conveys the atmosphere of a world turned upside down, as experienced in the family life of a history professor, who happens to be researching the history of fiat currency (paper money unbacked by gold, which is the prerequisite for hyperinflation).

With the loss of faith in the real value of money, many other aspects of life become purely imaginary or “fake.” The authority of the older generation, exemplified by the professor’s own familial situation, is weakened, along with their savings. Younger people are better able to adapt to a world of constant change, hoping to get by through speculation. The “Protestant ethic” of hard work and thrift is undermined by the awareness that neither quality will be rewarded. The professor’s very belief in justice is weakened by a growing sense of nihilism as a result. What the traditional way of life that the professor finds disappearing before his eyes had exhibited was not stodginess, but economic progress buttressed by the reasonable expectation of a stable currency and a stable family life.

These consequences provide support for an observation of the Nobel prize-winning author Elias Canetti in his 1960 book Crowds and Power that Cantor cites: “Apart from wars and revolutions, there is nothing in our modern civilizations which compares in importance” to inflation. “The upheavals caused by inflation are so profound that people prefer to hush them up and conceal them.” Canetti’s observation is borne out by the turmoil that has plagued once-prosperous Argentina ever since the reign of Juan Peron, thanks largely to high inflation spurred by ever-increasing budget deficits.

In sum, as Mann and Canetti suggest, the moral and political consequences of inflation – even, potentially, in its more moderate forms – are more to be feared even than its directly economic ones. Politicians, eager to please their constituents, will always be tempted to disregard these consequences. And economists and journalists, whose minds are narrowly focused on what they call “equity” (raising the living standards of the lower classes through redistributive government action rather than the operation of the free market), will do so as well.

But true statesmanship consists in taking account of these dangers and explaining them with clarity to the people. Presidents like Calvin Coolidge, under whose governance, along with the service of Treasury Secretary Andrew Mellon, ordinary Americans enjoyed previously unparalleled prosperity, understood this. Our leaders today would do well to follow their example.

David Lewis Schaefer is a Professor Emeritus of Political Science at College of the Holy Cross.