Pallets of Bricks

I've been thinking about inflation a lot lately. I get antsy anytime we have any amount of money in the bank. Before this last year, it was always because I knew that if I were just more savvy with money, I could make the money work for me. But interest rates for bank accounts might as well be 0%.

Since the first of last year’s bailouts, ahem, covid relief bills, my anxiety over letting money languish has doubled, as well as my contempt for the State. It's a double whammy. They have restricted the amount of wealth being created by not allowing people to work and they have increased the money supply. In other words, there is less stuff, but more dollars to buy the stuff with. Now they are going to send more out, and I am already stressed about where to put it until we need it. I know this sounds like complaining about pennies from heaven, but even inflation friendly economists are starting to warn about runaway inflation from these bills.

My nephew tells a story that when he was in Argentina, he noticed a lot of people had pallets of bricks in their yard. At first, he ignored it as one of the many oddities foreigners experience in other countries. Eventually he asked someone, "What's the deal with the bricks, are you about to build something?" No. They bought bricks because of inflation.

People are always building or repairing. Bricks have a fairly stable inherent value and have a steady demand. They also don't go bad. I suppose another feature is that they are not easy to steal in large quantities. Argentines were using bricks as a store of value, which is a function of money the local currency was failing to provide. So, anytime they got money they would buy what they needed, then buy bricks, and hold no money. If they needed commodities, they would sell brick and buy the commodities they needed.

Inflation, and to a higher extent hyperinflation, makes currency worth less every day until it is literally worthless. If you are holding money, you're losing money. Some very serious sounding economists will argue that so-called "controlled" inflation is actually good for society. I don't know all of the most sophisticated arguments for or against inflation, but this is what I know: wage earners lose out when there’s inflation.

The problem is two-fold. First, inflation doesn't happen all at once. It begins in the credit markets and is used for economic expansion. In the sectors of the economy that 'benefit' from the expansion of credit, prices rise. This affects adjacent sectors and prices. Take someone who flips houses. He doesn’t care what the cost of the house is, as long as he can sell it for more than he paid. The fact that prices are being driven up by easy credit does not matter to him. In fact, it just means it’s easier to get loans, and that it is more certain the sale price will be greater while he makes improvements to the house.

Eventually though, the poor schmucks on relatively fixed incomes (wages which are not tied to the investments being affected by the credit expansion) see that prices are going up all around them. Housing is more expensive. Banks will extend larger loans, but the monthly payments will have to be paid with last year’s wages. Gas is more expensive. Everything is. The only recourse for the working class is to beg their employers for wage increases, just to keep up.

I laugh at myself thinking about this. When I first started working a real job and was figuring out whether we should buy a house, and our budget, I thought, "If I leverage a lot of debt, it will become easier to pay off every year because of inflation!" I was so impressed with myself, I called up my wife. But my explanation essentially came out, "Step 1: Take on a lot of debt. Step 2: something something something. Step 3: Pay off debt with inflated currency." She wanted clarification on step 2. "I mean, I guess wages will just get adjusted as the cost of living goes up." I was foolish.

The second problem is knowing how to make sure your money retains its value. I am vaguely aware there are something called T-bills which are supposed to keep up with inflation, but I don't know how to buy them, or anything else about them. Who has even heard of those? The problem is that most people believe that if you work hard and save your money, you can get ahead. It is not that simple. Rent will go up, but buying can be dangerous. Are you buying in a bubble? Is this the next San Francisco and it's now or never? You don't wanna be priced out of the market!

The situation for low information wage earners is so damning that it's hard to believe that it isn’t nefarious. It's hard to see the well-connected get bailed out no matter what, while everyone else subsists on stagnant real wages, hoping that any investments won't go south, and praying that their company won't lay them off before their pension is vested. If there is any pension at all! Or if the company doesn't go bankrupt before they are required to pay it out.

I used to say that inflation robs everyone. That’s not really accurate. It robs everyone who isn't first at the trough, and people who don't know how to ride the waves of market manipulation.

But there is one thing you can do: buy pallets of bricks. Or, you know, crypto probably.