Inflation Is the Last Thing We Need

Inflation serves the governing class and hurts honest, hardworking people.


“Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment,” the New York Times reports.

One is Harvard economist Kenneth S. Rogoff, quoted in the Times: “Weighed against the political, social and economic risks of continued slow growth after a once-in-a-century financial crisis, a sustained burst of moderate inflation is not something to worry about. It should be embraced.” He favors an annual rate of 6 percent.

“I think higher inflation would help,” economist Jared Bernstein of the progressive Center on Budget and Policy Priorities added.

The Federal Reserve is another place to find advocates of inflation. This includes President Obama’s choice to succeed Ben Bernanke as Fed chair, Janet Yellen.

These people are saying, in effect, that you and I have too much purchasing power. Got that?Too much purchasing power.

Raise your hand if you think you have too much purchasing power. Anyone? I didn’t think so.

Why would anyone want inflation? Because, the Times says, “Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly.” (Got that? It helps people to borrow and pay off debts.)

To see if this makes any sense, let’s step back. Strictly speaking, inflation is what happens when a government central bank â€" in our case the Fed â€" increases the supply of money and credit out of thin air. When these increase and the supply of goods does not, prices will generally rise â€" that is, the value of the dollar will fall â€" and it will take more money to buy things than previously. That’s common sense. If people have more money to spend, not because they produced and sold more goods, but only because the central bank printed it, prices will rise with the rising demand. Generally, a rise in prices is called (price) inflation, but it’s actually just the consequence of (monetary) inflation.

When the value of the dollar falls, our incomes fall, even if wages are nominally unchanged. With price inflation, one hundred dollars buys less today than it did last year. Or, to put our monetary history in perspective, what five dollars bought in 1914, when the Fed first opened its doors, today costs about one hundred dollars. A wage increase might make up some lost ground, but people on fixed incomes don’t get wage increases, so they’re out of luck. Also, prices typically rise faster than wages during an inflationary period.

The advocates of inflation say it will raise business profits. Aside from the fact that raising profits is not the government’s job, does that really make sense? While businesses will be able to charge more for their goods during an inflation, they will also have to pay more for the things that they buy, including labor. Where’s the real gain?

As for the Times’ claim that inflation encourages people to borrow and to spend money more quickly (because its value is vanishing), what’s so good about that? Again, government has no business trying to prod us to borrow or to go on shopping sprees. For one thing, this discourages saving, which cuts against the need for more investment, research, and development â€" the real stuff of economic growth and rising living standards. Moreover, the Fed can’t be trusted to produce only a “little” inflation.

Inflation is even worse than I’ve suggested. Because Fed-created money enters the economy at particular points (through banks and bond dealers), a select few people get it sooner than the rest of us. Those who are thus privileged are able to buy at the old, lower prices, while the rest of us don’t see the money until prices have risen. That is an implicit tax and transfer.

And the problem isn’t simply a rising price level. Relative prices are what provide entrepreneurs and investors the information required for rational economic calculation and service to consumers. Inflation changes relative prices. Thus, it distorts the price system and, in turn, the multidimensional economic structure. That means any stimulus is unsustainable because the inflationary policy will eventually end and unemployment must follow as the inflation-induced errors are revealed.

Inflation serves the governing class. Honest, hardworking people should abhor it.

This column originally appeared at the Future of Freedom Foundation.

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    1. "Inflation is, always and everywhere, a monetary event."

  1. We may not need it, but after years of government practices and policies to curb it while competeing with other practices and policies that make it all but a given, it is going to happen.

    1. Once interest rates start to rise back to somewhat normal levels the budget deficit is going to explode like a bomb.

      All of the Dear Leaders recent great society investments like the ACA or TARP II-ELECTRIC BOOGALOO were financed with zero percent interest rates.

      Can't wait to see what happens when those rates start inevitably rising.

      1. You've got your cause and effect backwards. Until the debt is under control, interest rates will remain low.

        1. Not sure what you mean, but maybe I'm not understanding it correctly.

          "The Congressional Budget Office (CBO) baseline assumes rates will gradually rise over the next few years until the 10-year rate stabilizes at a more normal 5.2 percent in 2018 and thereafter. The implications for federal interest payments are alarming. The bill is assumed to rise almost four-fold between 2013 and 2023 or at a rate of 14 percent per year. Interest would become the fastest growing expenditure item in the budget by far, leaving health costs in the dust.


          Is this not correct?

          1. It is not correct. Interest rates will never rise because the Fed will never stop QE. As long as QE continues it will depress bond yields.

            Until, of course, the Fed loses control of the bond market, then rates won't rise at a predictable rate as the CBO states, but, rather, they'll go parabolic in a matter of weeks.

            1. Actually, interest rates will go up as investors lose confidence in the US dollar.

              Right now, the US dollar is propped up by the fact that everywhere else is even worse.

              1. For the last few years other countries have been inflating / devaluing their currency in a race to the bottom with the US dollar. They are more worried about losing the US market than they are about creating price inflation at home. The world had become the doting caretaker of our currency...Devaluing everything in an effort to keep up parity. They can't make the dollar more valuable so they make all the alternative / comparative currencies less valuable.

  2. What good is crony capitalism if your cronies can't benefit from it?

    1. Which cronies benefit from the Fed buying Treasury bonds?

      None do unless you count the small commission paid to the primary broker-dealers who sell those bonds for the Treasury.

      99.999% of QE funds go to the Treasury. I heard Fatty Windbag on redneck radio yesterday falsely claim that QE was going into the stock market to benefit Obama's Wall St boys. You never know how lies travel without listening.

      1. Real wages down 3.2% since Obama took office in 2009.

        Relax and breathe out as Barry quantitatively eases himself inside of you.

      2. "Which cronies benefit from the Fed buying Treasury bonds?"

        The crony economic activity that those bonds are subsidizing, of course.

      3. The Fed is currently financing a massive speculative bubble. The Fed is nothing but welfare for Wall St and Big Gov.

      4. Asswipe, that is exactly what is happening. The excess liquidity sloshes around a market where interest rates are so low that nobody is saving anything, so the stock market is the only game in town.

        Rednecks are better (and practically smarter) than pole-smoking libtard faggots with backwards economics like you.

        1. "Speculators" - or more accurately those connected to broker/dealers - use that liquidity by borrowing on margin and investing in risky assets. The money their using doesn't exist except as 0000 on Fed balance sheets. It feeds asset price inflation and benefits those who can predict and control the bubbles. What it doesn't do is actually create productive assets.

      5. Re: Palin's Buttwipe,

        Which cronies benefit from the Fed buying Treasury bonds?

        Those cronies that get the dollars from the government that the Fed was nice to print out of pure thin air to "buy" those Treasuries, Buttwipe. Those cronies. You know, like CGI Federal, for instance...

      6. Which cronies benefit from the Fed buying Treasury bonds?

        None do unless you count the small commission ...

        A small commission on 70 billion per month is nothing to sneer at.

        Of course that freshly money goes somewhere, too.... who? CRONIES!

      7. The QE funds don't go directly into the stock market but go ther as a result of depressed interest rates because of QE. Depressed interest rates make bonds a lousy investment, and stocks a comparatively good one.

  3. The great economic misconception that circulates around the public is that "inflation" is a rise in prices. Inflation is the degrading of the currency, typically by creating more of it.

    Because the federal government runs up debts like a heroin fiend, of course it loves inflation. Diminished purchasing power doesn't hurt FedGov because whatever the price tag is, it can just fire up the presses and make more paper to pay for it.

    1. The State's love of inflation has been around since long before the federal government.

      Rome's inflation history is well documented. The British pound sterling was called that because it was a pound of sterling silver, today valued at around $300. There are numerous other examples from less impressive empires.

      Inflation is a great way to tax poor people and others who operate in the informal economy.

      1. And furthermore, the federal government should be destroyed.

    1. The real trickle down economics

  4. Wasn't this already tried in the late 1970s?

    1. Heck it was already tried in the 1770's

      1. That's why the Constitution has Olde English words like "specie" and "to coin Money, and regulate the value thereof". Nobody today can understand what words like that mean.

        1. And furthermore, the federal government should be destroyed.

    2. There was no QE at all in the 70s.

      1. There wasn't inflation in the 70? Are you retarded? Oh, yeah. You are.

      2. M2 growth was quite impressive in the 1970s.

        According to St Louis Fed, M2 grew about 10% per year.

        1970-01-01 592,000,000,000
        1980-01-01 1,486,200,000,000

        This compares with 7% since the 2008 crisis:

        2008-08-01 7,766,500,000,000
        2013-09-01 10,770,000,000,000

        It is true that QE in the past few years has been even more batshit crazy than the 1970s. The only thing that has kept from getting into M2 is that the Fed pays interest on reserves. The money center banks get to sell their bonds at inflated prices due to low interest rates and get paid interest on risk-free reserves. When the Fed attempts to sell these bonds, the money center banks will buy them back for a discount. If you're a banker, what's not to like?

        Reserves are not included in M2 and, since they aren't in circulation, don't give rise to price inflation.

      3. There was no QE at all in the 70s.

        It wasn't called that back then; it was referred to as priming the pump. It also went on during the 60's.

  5. Chase. you think Todd`s c0mment is incredible... last tuesday I got a great new Volkswagen Golf GTI since getting a cheque for $4049 this past month and a little over ten thousand this past munth. without a question it is the most-comfortable work I've ever had. I actually started 5 months ago and straight away made myself more than $80.. per-hour. imp source........... http://www.BAM21.CoM

  6. I have yet to hear any cogent rational as to why inflation is better than deflation.

    Bernanke and most economists seem to take it as given that this is something that has already been indisputably proven to be so.

    Inflation favors borrowers while deflation favors lenders and holders of cash. Exactly how is a national economic good to favor the former over the latter? I don't think any of them can come close to actually proving it.

    Substantively, inflation is merely another form of government forced transfer payments. It steals the wealth of most people to benefit a certain subset of people. And it never does anything to improve the real economy.

    1. Deflation destroys asset valuations and undermines the contracts underlying those assets and then kills further investment activity.

      1. Only because those things reformed around the inflationary monetary system after the switch from the deflationary monetary system. You don't think inflation caused hardships for the institutions that formed around the deflationary monetary system?

      2. Inflation just fucks the other party. The housing market is a great example.

      3. Cash is an asset.

        The value of cash (it's purchasing power) increases with deflation.

        As I said deliberately trying to induce inflation and prevent deflation merely favors some people over others.

        Which has never been any legitimate business of the government (at any level) to begin with.

      4. Deflation destroys asset valuations and undermines the contracts underlying those assets and then kills further investment activity.

        It would alter the valuations which were distorted by inflationary policies to begin with.

        People who save their money in financial institutions ARE investing. We don't need anymore Keynesian multiplier drones bemoaning savings. Your ilk would throw a basket of puppies into a woodchipper if it increased consumer spending.

      5. Re: Palin's Buttwipe,

        Deflation destroys asset valuations and undermines the contracts underlying those assets and then kills further investment activity.

        Thus spake the economics ignoramus.

        The reason an asset would rise in value is because of either demand or inflation. If it is because of demand, then the available quantity of money is irrelevant. If it is because of inflation (i.e. an increase in the money supply) then the valuation was based on a LIE: that there are more savings in the economy than what really exists. So it may be true that some assets are reevaluated as deflation takes over (that is the contrary of inflation) but that does not mean the assets are destroyed or eaten by cosmic termites, or that investment suddenly stops everywhere. The idea that an ecomomy is THAT homogeneous is the staple of the economics charlatan. You know, like you, Buttwipe.

        1. Since when has being an ignoramus stopped one from speaking? The sad part is how many people believe the ignoramus.

    2. It's easier to control a country's citizens when they're all borrowers (there's a reason the term "debt slave" gets knocked around a lot). Hence, monetary policy as regulated by Big Government and Big Banks will favor borrowing.

      The American Dream (tm) is to buy a house in the suburbs on money you have to pay back over 30+ years. This makes for a largely immobile populace and subservient society.

      1. This is one of the reasons I don't buy. I stay light, I stay mobile.

        My salary has gone up over 100% in the last two years, because of willingness to relocate, with spouse and kids.

        That's more than enough to make up for paying rent in the short term. And I have the freedom to go where I need to for the long term.

        A mortgage has always just looked like a debt trap: I don't want to step in it. But, I hear they're all the rage.

    3. Personally, when I go shopping, I prefer to pay less than to pay more. Everybody I know thinks that way.

      But my betters tell me I should prefer to pay more rather than less.

    4. Let me try the inflation vs. deflation argument out. Why would you ever lend money if its value would go up under your mattress? Why would anyone?

      If everyone stops lending, you get a pure equity society. I would think capitalizing on a new idea would be harder, but I do not know if that is right. No one has really satisfactorily explained to me how a deflationary economy would work, but I'm game to find out. I think a market-based money would end up being inflationary just by fractional reserve banking alone.

      1. Well, you've got what is a common error in banking theory among libertarians: the failure to distinguish between central banking/fiat money regimes and fractional reserve banking. Fractional reserve banking qua FRB is not inflationary, in and of itself; in a free banking system, FRB would naturally arise,and the law of large numbers (along with the interbank exchange mechanism under sound money) is essentially what keeps it all together; George Selgin is by far the best authority on free banking, check him out.

        I do not understand how anarchists claim that banks should be warehouses; under anarchy, who exactly is going to issue this dictate?

        1. "who exactly is going to issue this dictate?"

          I guess that question is rhetorical, I'm not sure. But it certainly highlights a failure to grasp the fundamental moral principle at the root of anarcho-capitalist thinking.

  7. Because, the Times says

    You should have stopped there. The rest of the Times' explanation is just to fill space.

  8. Watch Palin's Fuckbuddy not respond to any of the good points.

  9. OT: Image of child's vocab workbook with statist undertones has been circulating a little bit over the last few days.

    I did my research, and found this was in the Pearson Reading Street Grade 5 Common Core 2013 curriculum.

    But progs aren't indoctrinating children at school!!1!1!

  10. Unless you keep money in your mattress, inflation doesn't matter much; you don't own money, you own stuff: real estate, shares in corporations, etc. Their value doesn't change even when inflation happens.

    1. Unless you're asset-rich, inflation does matter very much. Most people aren't. If they have to start selling assets to cover their rent because their salary no longer covers it thanks to inflation, they are going to run out of assets pronto.

    2. It influences your decisions, and artificially increases your risk tolerance.

      Now, instead of being happy with a relatively safe investment, gaining you 1-2%, you have to outpace inflation. You can do that by being more risky in your investments. Either that, our you just don't save and let Supreme Chancellor and God of All Below Obama pay you 10 different ways in retirement.

      1. Investments account for inflation. If inflation is 5% and the economy is otherwise doing the same, your stocks will automatically appreciate 5% more than they otherwise would, with no change in the risk of your investment.

        Hyperinflation and rapid changes in inflation rates cause problems, but a steady rate of inflation has no significant effect by itself. Of course, the extra money being printed to create inflation may or may not cause problems, but it really just acts like a flat tax.

    3. I'm sure your explanation would have reassured the citizens of Weimar.

      1. lol, lady

    4. Real Assets, such as real estate, tend not to change in value measured in constant dollars. However, as the interest rates rise, the cost of mortgages rises and therefore the cost of a home.

      Chattels tend to fluctuate in value depending on how fungiable they are.

      Investment assets tend to devalue: Bonds, because the principal erodes: equities, because their rate of return becomes unpredictable.

      And people do own money and cash streams. When your salary buys 5% to 15% less at the end of the year than it did at the beginning, things start to bite.

      1. Salaries and mortgages both account for inflation rates.

        You get problems from inflation if the rate changes unpredictably because people tend to write contracts that assume a constant rate of inflation. But an unexpected drop in inflation is just as problematic as an unexpected rise.

    5. Of course you are correct. Only the little people are affected by inflation. For example, my net worth is in a Kentucky thorougbred horses, a Scottish distillery, a Bordeaux vineyard, a well-diversified portfolio of equities and commodity futures, and a monocle factory. Though the effects of inflation are diverse, on balance these assets will most likely yield significant real returns.

      The little people with their savings accounts, savings bonds, CDs, and such are just bad stewards of what little they have, and the government is perfectly justified in inflating it all away. They deserve to remain paupers, and a good bout of inflation will teach any who aspire to become anything else their proper place.

      1. How come I have such a hard time finding an authentic monocle if you have such a successful monocle business?

        1. You can't just go out and buy a monocle, you have to earn it.

          Evict a few widows and orphans, employ children in your coal mine, whip your chair-bearers.

      2. Interest on savings and CDs also take into account the rate of inflation, like all other contracts people write. With 5% inflation, instead of the current 0.5% interest, you'll get 5.5%.

        But if you put your money in a savings account and rely on the interest, it's not a sign that you are a "little person", it's a sign that you are stupid. Investment accounts cost nothing these days, you don't even have to leave home to open one, and buying an index fund costs less than a cup of coffee.

        1. Under normal circumstances, yes, interest rates follow inflation. Now that we're in permanent QE, there's no incentive for the banks to pay interest since they can borrow all they could ever need from Uncle Ben and Aunt Janet.

          And normally assets wouldn't bubble up the way stocks and gold have over the last few years. The stock market especially has been over-inflated by QE in a desperate attempt to create wealth, in anticipation of the baby boomers cashing in their 401(k) accounts. Will it pop "unexpectedly" again? Only time will tell.

          1. Then problem there isn't inflation per se, it's QE. Generally, the problems blamed on inflation aren't due to inflation, but due to economic policies that are related to inflation somehow, either trying to prevent it or creating it.

    6. On fixed rate loans it matters. It also matters enormously on businesses with substantial turn around times. For example; if a construction company was paid ten million dollars to complete a building over three years, if inflation shot upwards during that time they simply wouldn't be able to complete it. They would run out of capital. It would destroy construction companies across the nation. The more severe the inflation the more pronounced the effect. Businesses with even weeks or days of turn around times would eventually go under.

      If we're talking really substantial inflation, he markets would super heat as people started dumping their currency. Precious metals, real estate, Vanilla Ice tee shirts; anything that retained value better than their currency, which is everything, would be snatched up. Of course that would cause universal price increases, exacerbating the problem and causing that currency "death spiral" that we hear so much about.

      An unpredictable currency also causes an infinite number of other micro inefficiencies in an economy, even if a full on collapse doesn't happen.

      1. All your examples are related to unpredictable changes in inflation rate, not the absolute level of inflation. Unpredictable changes in inflation rate do cause problems, but they can happen at any absolute level of inflation.

        And I'm not sure what you mean by "dumping their currency". Do you hold a lot of US currency that you can "dump"? Why would you? Most of us own parts of companies and real estate.

        1. Well, that's something or a moot point, because every instance of vert high inflation was unpredicted, and certainly not years in advance. Like my construction company example; if a company gets paid in advance for a job that has a long turnaround time (like many industries do), their operating capital from that initial payment will diminish. If that ten million dollars, for example, was worth five million half way through the construction process, there would be no way they could finish the building. Even if very high inflation IS predicted years in advance (which it never is), what would be the mechanic to compensate for that? You couldn't pay the company twenty million at the beginning of construction for a ten million dollar job, because that would be a gross overpayment at that time. You could maybe contract a company to build on a weekly or daily basis, but no one with expierence of contracting work wants to pay like that; a job would be purposely extended as long as possible. But like I said, this reasoning is pointless because no one accurately predicts high inflation periods in advance anyway, and certainly not far in advance and absolutely not with any certainty to draw up contracts based on it.

          1. What I mean by "dumping currency" is simply people spending that devaluing currency on anything and everything they can, in order to retain some value. Other currencies are desired, but any commodity will do in a pinch. We have many historical examples of this, expecially if a currency is devalued on a daily basis. It (the increased money velocity)causes price increases, which of course has a cyclic and effect on inflation. If hyperinflation occurs it's an exponential effect on currency devaluation in an incredibly short period of time. It's really an amazing mathmatical phenomenon. There's some good info and graphs about it in Weimar Germany and Zimbabwe in wiki.

            If you want examples of high (but not hyper)inflation screwing with the efficiency of an economy, look up the current kerfluffle in Venezuela. Price controls, shortages, and black markets are becoming very common. It's one thing to theorize that high inflation isn't so bad, it's another to see it in action.

  11. Thanks Sheldon. This one was right on the money.
    People have accused me of hoping for Obama Care's failure. Well, I hope for its failure in the same way I hope that 2 + 2 will continue to equal 4. I don't hope for bad things to happen to the economy so that I can say "I told you stupid bastards this would happen." but....I find myself unable to imagine any positive outcomes under our current circumstances. Our "Top. Men." are complete idiots....or they're evil. Again, I have trouble imagining that kind of evil. Maybe I just lack imagination?

  12. Collectivists love inflation because it deflates the value of all that debt the government takes out (and consumers who borrow beyond their means.) So inflation helps the irresponsible and punishes the responsible.
    Also, what the government calls inflation is artificially low in order to avoid costly COLA increases and it makes the current douche bags of the government elite look bad.

    Ah, America was nice while it lasted . . .

  13. "Inflation also encourages people and businesses to borrow money and spend it more quickly."

    Excuse me...but one effect of inflation is to cause interest rates to rise in line with the rate of inflation. Worse still, as the expectation of inflation becomes embedded into the system, interest rates rise even higher so that lenders are hedged against future increases in the rate of inflation. Hence the 20%+ interest rates on fixed-rate mortgages that we saw in the 1970s. Yeah, that really would encourage me to borrow more.

    Let's face it...the Left has been in love with inflation ever since William Jennings Bryan and his "Cross of Gold" nonsense. In the 1960s the Left believed that higher inflation was the trade off for lower unemployment; economics professors were still teaching that baloney in the 70s when we were having high inflation and high unemployment at the same time.

    1. In the 1960s the Left believed that higher inflation was the trade off for lower unemployment; economics professors were still teaching that baloney in the 70s...

      Believe it or not, they actually still are. My two friends who were taking business related courses, one at community college, one at a state school, both were taught the Phillips curve gospel. Not taught it as a historical curiosity, mind. Taught it as an axiom.

      The econ course I took discussed it, but only in comparison/contrast to post-stagflation theory. But I went to a different. So, small sample, but that's 1 out of 3.

  14. I always get a good laugh when I see a "news" article that reads, " excluding food and energy costs the government reports that inflation remains a low 1.25%.

    If they just excluded rents inflation would be zero !

    1. Well, my health insurance is going up 10% in February. My home insurance went up from $593 last year to 765 this year - 29%. Proptax goes up 5% each year. Clothes and food are more expensive. Fuel a little more . . .
      But, 1.5% sounds about right to me.

    1. Saying (price) inflation of a "reserve currency" is "not possible" due to a conflict between domestic and international interests is more than not true...It's a little stupid. I am assuming you mean "hyperinflation" /out of control inflation..? As the world begins to develop a general lack of confidence in US fiscal & monetary policy can we expect anything other than the devaluation of the dollar - price inflation..? I admit, its going to be different from anything that's ever happened before...Its going to be worse.

  15. When I hear someone complain that there's not enough inflation what I hear is "I think you make too much money."

    There's a line in Keyne's General Theory about inflation and wages, basically saying that if an employer were to come in and cut their employee's wage the employees would protest, but if the same employer didn't pay enough to keep up with inflation the employees won't notice. So basically inflation, from a working man's standpoint, becomes an unnoticed pay cut.

    Of course it helps that no one is ever taught what inflation is, what causes it and why. Remember that that stagflation of the 1970s was caused by Nixon wanting to pay for the Vietnam war and the massive borrowing in the 1960s. All that was supposed to be paid back by growth in the future economy. Of course everyone was overly optimistic and never anticipated the European and Japanese reconstruction would ever end, so why not borrow forever? When the growth stalled and the bills came due, there was no choice but to print our way out of it.

  16. You've got to love the logic that says inflation "encourages people to borrow more and spend it quickly." The same way the German hyperinflation of the 1920s encouraged people to by two beers at once: the price of a beer would rise at a rate faster than the rate at which the second beer would warm up. It's the same logic that suggests that burning down a building is a "good idea" because it "encourages" people to exit more quickly.

    And then they wonder why Libertarians are cynical about a Regulatory State run by highly educated experts.

  17. But if we only had TOP MEN....

  18. The substantial "printing" of money over the last 7-8 years makes inflation inevitable. If not for the energy gas boom our economy would be in shambles.

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