Eugene Plotkin Explains Inflation in a Way Everyone Can Understand

Headlines about inflation and economic challenges are inescapable. Many Americans are digging deeply into their pockets and finding pocket lint. Voters have been clear that economic worries were a key driver for their votes in the United States midterm elections. What exactly is around the bend, wonders, well, everyone while wringing their hands. 

Eugene Plotkin, the renowned fintech CEO and investment banker, has the skills to break down key economic concepts in a way that anybody can understand. Even an audience with no background in economics or finance will find Plotkin’s explanations palatable.

“There is a lot of discourse about the economy right now,” Plotkin acknowledges. “Sadly, there is also a lot of bad information out there. I want everyone to have the skills to be able to tell good information from bad information. After reading this article, I expect they will.”

Eugene Plotkin says that many people assume that economic and financial concepts are either complicated or tedious. For this reason, some may tend to lose focus when experts discuss financial issues.

“If you took an economics class in high school or college, I’m willing to bet that all you remember is that it was boring,” Plotkin says with a smile. “And you’re probably right. The way that introductory economics classes are taught tends to be a bit on the dull side. The good news is that you don’t need to remember any of that to understand what is happening in the world right now. I’ll keep it short and simple.”

Eugene Plotkin Talks Inflation

Plotkin points out that just by understanding a few basic ideas, anyone can get a grasp on the fiscal news. More importantly, people can use that understanding to make more informed decisions about their future.

“Let’s start by talking about inflation,” Plotkin says. “That’s a big word, but don’t let it scare you. Inflation just means prices are going up. That’s it. If you’re paying more when you buy groceries or filling up your gas tank, that’s inflation. The higher the prices, the higher the inflation. When prices go up, the money that you have loses its value because you get less stuff for it. So, you’ll hear people talk about inflation in one of two ways: as higher prices or as devalued money. Both mean the same thing, because when you can get less stuff for a dollar, that means your dollar is worth less by definition.”

Plotkin adds that inflation is incredibly dangerous and can result in profound consequences. He calls it one of the “economic horsemen of the apocalypse.”

“When inflation gets out of control, we call that hyperinflation,” Plotkin notes. “What does hyperinflation look like? Imagine going to the grocery store tomorrow and discovering that a loaf of bread costs $50 and a jug of milk costs $100. Imagine driving to the gas station and finding out that it costs more than $1,000 to fill up your car. Now imagine coming back to the store a week later and discovering that bread is now $1,000 and milk is $2,000, then driving to the gas station and having to pay $10,000 to fill up your tank. That’s what hyperinflation looks like.”

History of Hyperinflation

Plotkin says that many Americans don’t believe that hyperinflation like this is possible, that it would never happen in the United States. He warns that history suggests the opposite.

“I’m going to give you just a few examples,” Plotkin says. “In Germany after World War I, prices doubled every two days. In Hungary after World War II, prices doubled every 15 hours. In Zimbabwe in 2007 and 2008, prices doubled every day. When you look at countries that have experienced periods of hyperinflation in just the last hundred years, it’s a who’s who of major economies, including Austria, Brazil, China, Poland, and Turkey.”

Plotkin goes on to say that if there’s one thing to be learned from economic history, it’s that hyperinflation can happen anywhere. He notes that the good news is that we know what causes inflation and what can be done to combat it.

“To understand what causes inflation, we just have to look at the definition,” Plotkin explains. “Inflation is prices going up and money losing value. What causes prices to go up? Lack of supply. If there are only a hundred jugs of milk in the whole town, the store can charge a lot more for each jug and just sell to those who can afford it. That’s why gas prices go up when there is less oil being produced. And what causes lack of supply? Usually, it’s disruptions to the normal flow of goods, whether they be natural disasters or man-made problems, such as wars and economic sanctions.”

‘What Else Can Cause Money To Lose Value?’

Plotkin indicates that lack of supply is just one of the reasons that inflation can take place. There’s another reason that’s particularly relevant in today’s world.

“What else can cause money to lose value?” Plotkin asks. “Well, if we print up a whole lot of money and give everyone $1 million, that would also cause money to lose value. Since the amount of goods and services has not changed but everyone has way more money, the prices of those goods and services will go up. Think about it. If every minimum wage worker now has a million dollars, they will walk off their minimum wage jobs. In order for companies to continue producing goods and services, they have to pay everyone a lot more — and that means they have to charge higher prices.”

Eugene Plotkin explains that many governments worldwide significantly increased the money supply after the 2008 economic recession and even more during the COVID-19 pandemic to buffer people from the impact of lockdowns and related losses in productivity.

“The government has various ways to increase the money supply,” Plotkin says. “They don’t have to print dollars and give them out in the street. In fact, most increases to the money supply are done as electronic credits extended by the central bank. However, the mechanics are far less important than the impact. Massive increases in the money supply have resulted in inflation and unless this inflation is controlled, it can not only destroy the economy, but unravel the very fabric of society.”