My 12 year old daughter recently landed her first regular job. Once a week she goes to watch a little boy for a couple hours so his mom can get things done around the house.
She’s both delighted and very proud of her earning power. Plus, it will help her understand the value of money – and hard work – as she starts moving into her teen years. I’m excited. She’s excited. Everybody’s excited.
Last night she was asking me about inflation. Her question specifically was about the idea of minting two $1 trillion dollar coins and why it might be a bad idea.
So we talked about the increase of money supply, and I tried to explain it in a way I thought she could understand: baseball cards. Her favorite baseball player is Atlanta Braves shortstop Tyler Pastornicky, so I used him in the discussion.
I said, “If there were only 100 of a certain Tyler Pastornicky card in the world, would it be worth a lot or a little?”
“A lot!” was her reply.
“So if I had one, what do you think it would be worth?”
“Probably at least $50.” (Please nobody sell my daughter your Tyler Pastornicky cards…she’ll pay way too much for them.)
So we continued the discussion, talking about how long she would have to work to earn the money for that Pastornicky card. And then I said, “what if, after you’ve already spent $50 for the card, the baseball card company prints 1,000 more of the same card?”
She got mad. And rightfully so. She knew that her prized baseball card would be worth a lot less than the $50 she paid for it. “But,” she said, “they don’t do that. When they say there’s only 100, that’s all they make.”
She’s right. The baseball card company wouldn’t want to deflate the value of its cards or ruin its reputation as a legitimate card company.
So I asked her, “What if there was more money? When there were more of that Pastornicky card, the value went down. Would the same thing happen if there was more money?”
She knew that the value of the money would go down, but she didn’t quite grasp what that would mean. I explained how it meant that the cost of her Tyler Pastornicky card would go up – that she’d have to work more to buy it next year than she would this year. I told her that’s what people mean when they talk about inflation.
She didn’t like the sound of inflation at all. People rarely do when they actually start to understand it.
So here’s what I want to know: if so many Americans can understand this, if economists can understand this, if my 12 year old daughter can understand this, then why can’t Congress?