The Post-Journal
The Cursed Reality Of Inflation
APR 27, 2024
ROLLAND KIDDER
A reader of this column sent me a letter asking my
views on this subject. Though not an expert on inflation, I do have my opinions
about it.
My father likely had a great influence on me in regard
to this issue. He believed that inflation was the bane of all and an enemy
especially of the prudent saver. “The money you save will depreciate in value,”
he would say. He was especially suspect of life insurance that would pay out a
designated dollar amount: “The dollars you put in won’t be as valuable as the
dollars that are finally paid out to your heirs.”
He hated inflation and it was one of the reasons, I
believe, that led him to begin, in a small way, investing in stocks. As a dairy
farmer, everything he earned on the farm went back into the farm. However, if
non-farm income was realized – like the proceeds of the sale of a parcel of
land – he would, after much research, invest that in stocks as a way to try to
offset the impact of inflation. (This was back in the days before mutual funds,
IRA’s or the 401(k).
He would not invest in very small or untested companies.
He would look at companies that had a track record, evaluate their earnings,
their price/earnings ratios, their debt…before making his decisions. He called
it “value” investing. He would check regularly through reading Barron’s or some
other investment publication on whether or not these companies were continuing
to follow a prudent business plan.
He couldn’t control the price of milk (which usually
never kept up with inflation,) nor with the cost of farm machinery which always
kept rising at least, if not faster than the rise in inflation. So, he did what
he could with these stock investments to try and offset the deteriorating value
of money – which to him defined inflation.
There are a lot of causes for inflation–federal deficit
spending, increasing wage rates, the cost of food, housing, energy, etc. But,
what my Dad finally came to conclude was that inflation, no matter the cause,
was a curse that would always be around and was something he couldn’t control.
Fortunately, we live in a country where at least one
major economic player continues to try to tamp down inflation – and that is the
Federal Reserve Bank. Though its primary means of doing so is setting the cost
of short-term money loaned to banks, this interest rate lever has worked over
the years to dampen inflationary pressures. As a result, the United States,
despite its bloated debt and deficit spending, continues to be a country where,
at least, there is a target of trying to keep inflation at or below 3% per
year.
We are the envy of some third world countries whose
inflation rates can reach 50% or even 100% a year.
I remember taking my first economics course in college.
My Dad, who only had one-semester of college before needing to return home to
run the farm, would quiz me regularly about what I was learning. But, in truth,
I think he knew more about economics and, especially, inflation than I did. He
experienced it every day in running the dairy farm.
So, to the reader who sent me the letter, here is my
answer: I am still not an expert at knowing or understanding all that there is
to know about inflation. However, my Dad was right – it is a curse that will
always be with us, and the only way we can offset it is by the old-fashioned
way of trying to increase our income, reduce our expenses, and then invest
prudently to try to offset its effects.
Rolland Kidder is a Stow resident and a former New York
state Assembly member.
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