Niall Ferguson: Inflation's Back

Economist/historian Niall Ferguson is proclaiming "The Great Inflation of the 2010s" in Newseek. Sample:

To ordinary Americans, however, it's not the online price of an iPad that matters; it's prices of food on the shelf and gasoline at the pump. These, after all, are the costs they encounter most frequently. And with average gas prices hitting $3.88 a gallon last week, filling up is now twice as painful as when President Obama took office.

Sensing a threat to his hopes of reelection, the president last week called on Congress to eliminate "unwarranted" tax breaks for oil companies and set up a Justice Department task force to investigate price gouging and fraud in the oil markets. Give me a break. The spike in gas prices is the result of Fed policy, which has increased the monetary base threefold in as many years, and a geopolitical crisis in the Middle East that the president and his advisers still haven't gotten a handle on.

And the reason the [Consumer Price Index] is losing credibility is that, as economist John Williams tirelessly points out, it's a bogus index. The way inflation is calculated by the Bureau of Labor Statistics has been "improved" 24 times since 1978. If the old methods were still used, the CPI would actually be 10 percent. Yes, folks, double-digit inflation is back. Pretty soon you'll be able to figure out the real inflation rate just by moving the decimal point in the core CPI one place to the right.

Relevant Reason reading: "Lessons From the Great Inflation," a January 2009 look at the forgotten 1970s rise and 1980s fall of inflation, by Robert J. Samuelson; and "Inflation Returns!"–an October 2009 forum on the prospects, fears, and even hopes for rising prices in post-crises America, starring Peter Schiff, Jeffrey Rogers Hummel, Scott Sumner, Randall Parker, James Grant, Steven Gjerstad, Vernon Smith & Donald Luskin.

Comments

[Tim]

Coke machine circa 2020:

INSERT COINS AND MAKE SELECTION. THIS MACHINE ACCEPTS ONE THOUSAND AND FIVE THOUSAND DOLLAR BILLS.

[PantsFan]

drink

[cynical]

When Obama says he wants millionaires to pay their fair share, he’s actually saying he wants to substantially broaden the tax base over the next decade.

[Mike Laursen]

Nonsense. Oh sure, a Coke will cost that much, but you’ll be able to buy it with your nifty smart phone.

[kinnath]

Time to pull my Whip Inflation Now buttons out of the back of the drawer.

[Fist of Etiquette]

I’m marketing a button that reads whip the ‘flation. In- or de-, take your pick.

[kinnath]

whip da flation

[UKOD]

“You guys, we got a chick here who wants to pay in Meeses.”

[Somalian Road Corporation]

beaten to the punch, curses

[UKOD]

“We’ll give you a discount for being spunky. Turn around.”

[Somalian Road Corporation]

Hyperinflation has devalued the dollar to the extent that trillion dollar bills ? Ed Meeses ? are nearly disregarded and the quadrillion dollar note ? the Gipper ? is the standard ‘small’ bill. For physical transactions people resort to alternative, non-hyperinflated currencies such as yen or “Kongbucks” (the official currency of Mr. Lee’s Greater Hong Kong).

[Restoras]

Cue Shrike!! C’mon Shrike, tell us how wrong and stupid Niall Ferguson is and how brilliant and right you are!

[Episiarch]

Do not summon the mongoloid! Its stupidity may destroy us all!

[Restoras]

I know, I know, but there are so few things in this world more entertaining than stupidity in action!

[Somalian Road Corporation]

ugh, no, the shitty Reason trolls are both very prolix and very boring, a terrible combination

[Michael]

I respect Bernanke. As an expert on the financial history of the 1930s, he was one of the very few people in power back in 2008 who grasped how close we were to another Great Depression.

This is a profound bit of wisdom that’s very much worth repeating. So much, in fact, that we’ll repeat it incessantly, and if it still doesn’t sink in we’ll beat it into you with a cudgel.

[Feynman]

What I cannot create, I do not understand.

[Tim]

He’s going to get Mugabe on your ass.

[yonemoto]

ugh. Niall has it all wrong. There will be one round of deflation FIRST, THEN we will have the great inflation. You can’t see it? Certain Precious metals (such as PALL) already are going down. Those are leading indicators.

[yonemoto]

I just got off the phone, and the gas stations had put an $85 hold on a debit card transaction which almost caused a huge problem transaction-wise. If you don’t think this is going to cause decreased consumption on the part of the consumer, and attendant deflation, you’d be silly.

[Paul Krugman]

As long as salaries do not rise, inflation is impossible.

And, if inflation seems to be coming, we must respond quickly and decisively; we’re developing a new model right now.

[Paul Krugman]

In other news, I am an intellectually corrupt fool that cares not a lick for the proles. Let them eat iPads!

[Tim]

You’re the Jar Jar Binks of economists.

[Joe M]

Damn, that’s harsh. Jar Jar Binks didn’t deserve it.

[sage]

Is this a spoof?

[Thom]

Woo hoo! Time to get this pesky mortgage paid off.

[Joe M]

Haha I was just thinking that. A silver lining on this turd brown cloud.

[jtuf]

Sensing a threat to his hopes of reelection, the president last week called on Congress to eliminate “unwarranted” tax breaks for oil companies …

For an entire year, Democrats arguing for Obamacare insisted that we all pay for people who default on hospital bills through higher hospital prices. By this logic, eliminating the tax breaks for oil companies will raise gas prices. In reality, I think the losses suffered by companies tend to get split between consumers and investors. Obama’s contrasting views towards losses for healthcare companies and losses for oil companies is based on ideology, not reality.

[[Johnny] L[o][n]gt[o]rs[o]]

By this logic, eliminating the tax breaks for oil companies will raise gas prices.

By any logic. Raise the costs for an entire industry (so nobody gets an advantage by not having costs to pass on) and the costs get passed on.

[Wesley db Mouch]

You assume, of course, that the revocation of tax breaks will be done evenly across the industry. Have you learned nothing about manipulation of the tax code?

[P Brooks]

The other day (as usual, I was only half-way paying attention) there was somebody on the teevee saying high gasoline prices are soaking up excess liquidity. In other words, Doing the Fed’s job for them.

Certainly an interesting notion.

[P Brooks]

Real costs should be reflected in the purchase price of everything; from commodities to medical services.

Unfortunately, little matters to politicians except the “cost” of (not) getting re-elected.

[Al Wayswright]

Costs have nothing to do with prices. Where did you get the silly idea that costs give rise to prices? Have you been reading Smith, Ricardo or Marx?

Prices arise from the winning bids of demand in the face of supply.

[R C Dean]

The other day (as usual, I was only half-way paying attention) there was somebody on the teevee saying high gasoline prices are soaking up excess liquidity. In other words, Doing the Fed’s job for them.

Interesting, but wrong. Transferring cash from one person to another does not remove the cash from the economy or reduce liquidity.

[R C Dean]

As long as salaries do not rise, inflation is impossible.

Because there is just no way in the world that prices can go up without wages going up. Violation of the law of physics, doncha know.

[Tncm]

Because there is just no way in the world that prices can go up without wages going up. Violation of the law of physics, doncha know.

I’ve never heard this brand of neo-Keynesianism before. I mean, that’s such an incredibly ignorant claim to make. It’s untrue on both theoretical and empirical grounds.

[Tncm]

Err, I didn’t make it too clear in my post, but I was talking about how Krugman apparently said that wages must rise with prices. Which is a very, very uneducated statement.

[Jersey Patriot]

About 2002, commodities of all sorts hit the cheapest they had ever been. The prosperity of the 90s wasn’t just a stock bubble; it was also the cheapest decade for commodities ever. After the dotcom crash, commodities hit their lowest point in the 2001-2003 zone.

Since then, commodities have rocketed upwards in price. Oil, coal, iron, copper, cement, gold, silver, corn, wheat, rice, rubber, and cotton have all risen in price much faster than stated inflation. I can think of four reasons why this is, in roughly more important order:

1. Speculation. I consider this unlikely. At the end of the day, someone takes possession of the commodity and uses it. You can’t horde oil or cotton in any meaningful way, which disrupts paper games.

2. Understated inflation. Headline inflation is heavily manipulated. Perhaps inflation has been running even faster than ShadowStats and their ilk estimate.

3. Chindian growth. China and India have been growing like gangbusters. Both governments are doing massive building projects that require tons of input. Their populations continue to grow, and as they become richer, also demand more meat (which takes more grain to produce). Demand is outstripping supply.

4. Limits to Growth. We live on a finite planet with only so much arable land, crop yield per acre, fertilizer, cheap usuable water, oil, gold, coal, etc. Human ingenuity is remarkable but cannot make something out of nothing. We have used up the good sources first and are now turning to the lousy ones, which take more time, energy, and cost to be useful (consider drilling in deepwater or watering crops with non-renewable aquifers). The unprecedented growth of China and India have brought us closer to these limits than expected, which is causing a rise in price.

[Alan Vanneman]

Niall Ferguson is a neo-imperialist gasbag who wishes that the British Empire were still intact. My (shocking) prediction is that inflation is not “back.”

Ferguson basically predicts whatever he feels will most embarrass President Obama, whom he hates for being insufficiently imperial, hoping that predicting something will make it come true.

[yonemoto]

slow down, there Anal. Ferguson is a scotsman, and clearly has no love for the British. However, like all scotsmen, he does have a penchant for tearing shit up (a la Charles Iⅈ, A. Hamilton, John Law, etc.)

[yonemoto]

groundskeeper Willie, too.

[David Farrer]

Scotsmen, including Ferguson, are British!

[yonemoto]

True enough in the pedantic sense.

[Paul Krugman]

This opinion “Niall Ferguson is a neo-imperialist gasbag who wishes that the British Empire were still intact” has absolutley jack to do with whether inflation is back or not.

F

[David Farrer]

Why “pedantic”? It’s a statement of fact.

[Bradley]

Yeah, so. What happened to those mainstream economics commentators who spent 2008?2010 wringing their hands about the upcoming deflation? I’m sure some admissions of wrongness will be forthcoming.

? LOL