Gardner: Is inflation making economy good or bad? Both, at same time

At lunch with an old friend, talk turned to the high cost of dining out. Entrees over $25 are not uncommon around here.

By the time we were served, our conversation segued to the rising cost of hotel rooms. My friend paid over $500 a night in New York City. I told him a local hotel owner I know gets $290 a night on weekends. He’s usually full.

When the check came, my progressive friend was complaining about the modest wages of food service and hotel employees, and how the government ought to do something about it.

I asked him how much more he was willing to shell out for lunch and a hotel room to increase the pay of these hardworking folks. That is when I pointed out that the restaurant owner, the hotel owner and proprietors of any private-sector business cannot print money or compel anyone to patronize their establishments.

One person’s inflation is another’s higher wage. A competitive economy is a tough master, bad for some and good for others.

Across town a nonprofit where I serve as treasurer holds a large block of Chevron stock. This oil producer was the best performing issue on the New York Stock Exchange in 2022 and was up again last year as our recovery from the COVID-19 shutdown spurred travel, consumption of gasoline and Chevron’s profits.

Chevron’s performance has boosted the endowment for the nonprofit, enabling us to do more for the community. But some of our board members who must travel more than an hour to attend meetings are not happy about gasoline prices.

Is it a good economy or a bad one?

Depends on where you stand. Even at our house.

My real estate agent wife, Diana, had a difficult year in 2023 as inventory declined. Mortgage rates soaring from less than 3% to 7% didn’t help. I tried to console her by reporting that the yield on our money market fund was up 100-fold in two years, bringing in thousands of dollars in new interest income every month. My cheerful exhortations on higher interest rates were of no use.

Is it a good economy or a bad one? Both, at the same time.

All of this should be no surprise. When the federal government effectively tosses bales of cash across the landscape and the Federal Reserve lowers interest rates to zero, prices will rise, especially prices of financial instruments and real estate.

If you were lucky enough to enter the pandemic shutdown with some of both, you’ve done well. Those who were not investors or homeowners have been left behind a widening wealth gap. This breeds resentment and calls for Uncle Sam to “do something about it.” The usual prescription is to raise taxes on high income people and to print even more money.

I dallied on the bread aisle in Food Lion with another old friend, also a progressive, who subscribes to these ideas. Marginal state and federal tax rates will hit 60% for high earners in New York and California if President Joe Biden’s proposed federal tax rate increases take effect, I said.

“Not high enough,” he said.

He took his expensive bagels and headed for the checkout before I had a chance to ask him where he expected those heavily taxed high earners to get the money to pay their employees better wages.