Using your knowledge of the relationship between inflation and nominal interest rates, and assuming that the savings were invested in government bills, comment briefly on the analysis presented in the following letter from the National Taxpayers Union:
Dear Friend:
You know how much it costs you to join National Taxpayers Union—$ 15 a year. You may think that you can save that $ 1.25 a month by not confirming your membership. But are you sure? Is it really cheaper for you not to join than it is to pitch in and fight?
Consider this simple arithmetic: Before taxes were raised to their present level, the average family saved $ 1,000 per year. You may have saved this much in the past. Over your 45- year work cycle this savings, with compound interest, should accumulate to $ 230,000. That would yield an annual income of $ 13,800 without ever touching the principal.
But when inflation rose to 6 percent, it canceled out the interest rate, reducing the value of your savings to the amount that you put in—$ 45,000.
With inflation as it is today, the value of your savings would end up being worth only about $ 16,000, which could yield a monthly income worth only about $ 70. That represents a clear and direct loss to you of more than $ 1,000 per month of retirement income plus more than $ 200,000 of capital confiscated through riskless government.
Think about it. The cost of big government to you is enormous and growing. Even if you don’t think you have that much to lose, you do. Everything you have left will be wiped out unless there is a massive “taxpayers’ revolt” to bring inflation and high taxes under control. The $ 1.25 per month that you spend to support this effort is a bargain considering that the certain alternative is bankruptcy for you and the whole country.