Stop worrying about what COVID will do to Colorado. Start worrying what inflation might do.
A couple of weeks ago, I suggested a few bills the Colorado legislature should immediately pass to reform emergency powers (requiring that only elected officials, not bureaucrats, have the authority to shutter businesses) in case COVID cases have a resurgence in the fall.
Will there be another spike in cases this fall? Who knows? The experts will argue and make predictions. But it’s best to be prepared.
What will happen to the Colorado economy? Well, economists will argue and make predictions. As George Bernard Shaw said, “If all the economists were laid end to end, they’d never reach a conclusion.” But it’s best to be prepared. And we are not.
Among the predictions is a sizable jump in price inflation. Real inflation is a distant memory for most Americans, a piece of storybook lore they might have been taught in history class. I remember the massive stagflation (high inflation and high unemployment) in the late 1970’s, but I was a high school kid. It was dad’s problem then.
As the federal government creates money out of thin air to pay for their outlandish stimulus spending, they throw gas on the flames of inflation worries.
The amount of cash being pumped into the system is like nothing we have ever witnessed. The money supply (the measure of how much cash is in our economy) usually grows around 3-5% a year. It is now growing at 30%. Some predict it could hit 50%. That would mean our money supply would double in less than two years.
But if price inflation were to make an ugly return it could wreak havoc on Colorado more so than other states because of amendments to our state constitution. Our legislature should be proactive and fix these potentially devastating harms NOW before inflation might hit.
Specifically, they must fix problems with the state minimum wage and the spending mandate for education known as Amendment 23. These fixes would require changes to the state constitution, meaning they must be referred to voters for approval.
In 2006 voters approved Amendment 42 which didn’t just raise the state minimum wage, it foolishly tied it to inflation, putting minimum wage hikes on autopilot. Sizable campaign contributions for the amendment were made by the usual rich progressives, Pat Stryker, Tim Gill and Jared Polis.
Forget whether you think minimum wage hikes are good or bad, remember instead that sometimes inflation and unemployment can hit at the same time. Inflation hit nearly 20% in 1917 and 15% in 1980. If such rates return, the Colorado minimum wage is forced up to match it. That may sound like a nifty idea, but if unemployment rates stay where they are now, we could have people desperate to take a job below the minimum wage but it would be criminal to do so.
Imagine a $50-an-hour minimum wage with Depression-era unemployment rates? We’d never recover.
We don’t need to throw out the automatic minimum wage increases tied to inflation, as much as I would love to, but if the requirement were just pulled out of the constitution and placed into statute then the legislature could adjust it IF the unthinkable happened.
The same sort of problem could arise with Amendment 23, passed in 2000 and also funded by Jared Polis, which put K-12 educational spending on autopilot, requiring it to grow at least at the rate of inflation. This can mathematically work IF the state is bringing in more in taxes than inflation.
But when tax revenue plummets due to colossal recession while inflation returns to 1980s levels, the legislature could find itself spending nearly all our money on K-12 with very little left over for crucial programs like healthcare and law enforcement.
Again, the best prevention is to pull this mandate out of the state constitution and place it in statute. It doesn’t change the mandate, but if inflation rages as tax revenue crashes it gives the legislature the emergency power to do something.
Government is very good at preparing for an emergency after it’s over. Instead let’s prepare for a stagflation emergency before it gets here.
Jon Caldara is president of the Independence Institute, a free market think tank in Denver.