No. 75 - THE POWER OF INFLATION

No. 75
Jim Davidson...NEWSPAPER COLUMN
THE POWER OF INFLATION

There is an old Welsh proverb that goes, "money is an eel in the hand." In other words, it's so slippery that it's impossible for most of us to hold on to it. Back in the 1992 presidential election, the phrase "it's the economy, stupid" not only helped the democrats win the White House, but it also summarized in one simple phrase what is most important to the American people. There is a lot of truth in the saying, "if you really want to get someone's attention, hit them in the pocketbook."
In these modern times, there is no doubt about it, money is very important and there is a factor that we know as "inflation" that determines the value of our money and how much it will purchase. You know about inflation, don't you? Inflation is that $100 that you had 20 years ago that would go a long way, and now you won't have much change left if you take your spouse out to dinner some evening.
Several months ago I received a report from my congressman that contained a full page article about inflation. Even before it reached my mail box it was out of date, because as you probably know, the consumer price index is tabulated on a monthly basis and the inflation rate changes. There are a number of factors that determine the inflation rate, but it is controlled, for the most part, by the Federal Reserve Board when they raise and lower interest rates.
We all know that inflation means higher prices, but here is an example to show how inflation affects you and your family. Back in 1980 the inflation rate was 12.4% and in 1983 it was 2.5%, a difference of roughly 10%. This means that a family of four with an income of $24,000 is ahead by $2,440.00 with the lower inflation rate of 2.5%, as opposed to 12.4%. What I really want to get across to you is this: a lot of people and a lot of politicians would have us believe that inflation is "just a way of life" and that we can live with moderate inflation. What this does is give them room to operate.
What we constantly need to be reminded of is that every 1% increase in inflation increases taxes by 1 1/2%. The people in our country that inflation hurts most are those on a fixed income and those in minimum wage jobs. They have to pay the same prices at the grocery store that the rest of us do. If our annual income is increasing more than the rate of inflation, then we are not affected too adversely, except for the tax factor. Keep in mind that politicians can give themselves a raise, but most of us can't do that.
The article I mentioned earlier contained a graph showing the explosive power of inflation. Let me show you what inflation does to items worth $100 over a period of 50 years, and remember, this is your $100 I'm talking about. Items costing $100 at 2% inflation in 50 years would cost $269. Items costing $100 at 4% inflation in 50 years would cost $711. Items costing $100 at 6% inflation in 50 years would cost $1,841. Items costing $100 at 8% inflation in 50 years would cost $11,739. Now, it should be easy to see why a politician would want us to believe that from 4%-6% inflation is acceptable. This would give them room to operate, but I'm not sure about the rest of us -- especially our kids and grandkids.
It may appear that I'm down on politicians, which is not the case. Only those who are greedy and self-serving. Let me say how very much I appreciate those men and women who serve in elected office, who care about America and make decisions based on what is best for our country. In the months and years to come, we must pay off the national debt and get back on solid ground. (EDITOR'S NOTE: Jim Davidson is a motivational speaker and syndicated columnist. You may contact him at 2 Bentley Drive, Conway, AR 72034.)