The affordability crisis will return Congress to the Democrats

Then consensus among commentators on Zohran Mamdani's victory in the New York City mayoral race is that young people turned out for him because of the high cost of living in the city. That could be true. Economics tends to be the main driver of politics. Voters turned to a socialist who promised to fix the problem. 

Of course, President Trump promised to fix inflation during his campaign, but he hasn't. The inflation rate is lower, but it has made many things like housing unaffordable for many. The "affordability crisis" will likely return control of congress to the Democrat party in the elections this fall. Can Mamdani succeed where Trump has failed? No. Here's why.

To cure inflation, a good doctor must know the cause of the illness. Aspirin won't cure cancer. Few politicians, Rand Paul excluded, understand money or inflation and don't want to be bothered with facts. Politicians appeal to voter emotions. The average U.S. citizen blames greedy businessmen for high prices and that's a good enough explanation for politicians.

U.S. citizens weren't always so ignorant about the cause of inflation. In the late 19th century, shoe shine boys debated the merits of gold and silver as money when the nation was called on to choose between the two. It was the main issue of the presidential election of 1896. The country had been on a gold standard since 1876 and Democrats wanted to reinstate silver as money. Most people used paper money, but banks promised to exchange paper for gold on demand. 

Silver had been used as money for thousands of years. But new silver mines in Nevada had flooded the country with silver and caused it value to decline against that of gold. Also, new farming methods caused an explosion of food from farms. With a constant supply of money that gold provides, the price of food fell and reduced farm income, making it hard for farmers to repay the debts they had taken out to grow the food. Farmers faced bankruptcy while city dwellers rejoiced in the lower cost of food. 

Making silver money again would cause prices to rise as the tsunami of silver from western mines flooded the country. Farmers wanted prices to rise to make it easier for them to pay back loans. Everyone seemed to now these facts. Gold money, being rare, caused prices to decline slowly with an increase in production. City folk were fine with that. A growing money supply that silver offered would cause prices to rise, that is, cause inflation, and farm families desired higher prices. William J. Bryan of Nebraska, the democratic candidate for President said, "You shall not crucify mankind upon a cross of gold."

The U.S. hasn't used gold or silver as money since 1971 when President Nixon refused to pay the U.K. and France the gold we owed them, insisting on giving them paper dollars instead. So what does the presidential debate over a century ago have to do with us? Economics hasn't changed because it's based on human nature, which hasn't changed since Adam and Eve were deported from the Garden.

The great economist and Nobel Prize winner Milton Friedman in 1963 wrote, "Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." During the gold standard, only increased mining could raise the supply of a gold money. Today, the process of creating new money is more complex. It's often described as printing money because governments used to cause price increases by printing more paper money. 

Congress did that during the Revolutionary War and made the Continental paper dollar worthless in a short time. Germany did it in the 1920s and caused hyper-inflation. One of my favorite episodes of the TV comedy Hogan's Heroes involved the prisoners' discovery of a program by Germans to counterfeit dollars and destroy the U.S. economy through inflation. If Hogan could understand what money printing does to an economy, why can't modern Americans?

Printing paper money is unimportant today because most money is nothing more than digits on a bank server in checking accounts. The people gave the Federal reserve a monopoly on the money supply in 1913 and it uses that power to increase the money supply at will. One way it does that is by reducing interest rates. Lower rates cause people to borrow more to buy cars and houses, and invest in the stock market. It causes businesses to borrow and expand, hiring more people. Any Economics 101 textbook explains the process. 

The other way the Fed expands the money supply is through buying debt from banks. It used to buy only U.S. government debt, such as bonds, but now it buys even junk bonds, car loans, and credit card debt, anything banks want to get rid of. Where does the Fed get the money to buy those? It counterfeits it. Not through printing, but through digital counterfeiting. It creates the money out of thin air. Banks loan out the money from the sales of bonds to the Fed to businesses and consumers. Again, any Economics 101 text explains the process. 

Congress makes the problem worse through its extravagant spending. Currently, the federal government must borrow $2 trillion every year to pay its bills. Americans don't save enough to soak up all that debt and other countries are switching to gold reserves from U.S. bonds. That leaves the Fed as the main buyer of new federal debt, which is purchases by "printing" new money and expanding the money supply. 

The modern process of expanding the money supply is too complicated for most people to understand and envy encourages them to blame greedy businessmen and capitalism. So they turn to socialism, also ignorant of the fact that socialism has always and everywhere impoverished everyone. 

The U.S. benefitted from capitalism and a gold standard through the 19th century. Prices in 1900 were hardly different from those in 1800. The Fed is not part of capitalism. It's the opposite, socialist central planning. People chose silver then gold as money through free exchange. No government was involved. Capitalism requires a gold standard. Where there is no gold standard there is no capitalism. 

That's why I argue that the U.S. hasn't enjoyed capitalism since the creation of the Fed. No decent economist in the 1980s called the U.S. a capitalist system. It was at best a mixed economy, though more socialist. So why do people think the U.S. is capitalist? The socialist media began calling the U.S. system a wild west, no holds barred, totally unregulated capitalist economy after the election of President Reagan. 

But Reagan didn't deregulate anything. He merely ended federal price controls. His second term he signed the largest tax increase in U.S. history. The Federal Register of new regulations continued to reach 70,000 pages a year until 2000 when it jumped to 100,000 pages. Government regulation of business is not capitalism. It's socialism. 

Unless, there is a revival of Christianity in the U.S., socialist policies will continue to cause inflation and economic ruin, but socialists will always blame capitalism. It's an ancient song and dance.