The economic consensus of the moment is that higher prices are the same as inflation, and the Fed is the only governmental entity situated to bring down higher prices. It’s a dangerous consensus. Prices are how a market economy organizes itself.
Forget for now that the Fed is not remotely capable of bending the markets to its will, and instead let’s think about what kind of tangle we’re getting ourselves into if we say inflation is higher market prices, or a higher basket of prices of the government’s choosing, only to tell the Fed to bring “inflation” down. It’s tantamount to economists and pundits ascribing to government the power to distort market signals, and by extension, the market economy. No thanks, not to mention that higher prices are not necessarily evidence of inflation as is. Please read on.
Unless economics is no longer about tradeoffs, all rising market prices pre-suppose falling prices. If you’re spending much more on eggs, by definition you have fewer dollars for other goods.
Which is yet again a hint that prices go up and down for all sorts of reasons that have nothing to with inflation along with deflation. Think eggs yet again. Supposedly avian flu looms large in the price surge. If that’s “inflation,” should the Fed fight it? Hopefully the question exposes the folly of today’s consensus.
Conversely, the price of flat screen televisions continues to decline. Deflation? Not remotely. A falling price pre-supposes rising prices as new wants are reflected in the marketplace. Positive tradeoffs.
The challenge once again is that economists and pundits are saying that higher prices are inflation, and only the Fed is situated to fix inflation. Except that the Fed can do nothing here. Not only are rising and falling prices most often not evidence of inflation or deflation as is, it’s no insight to say that the only way to bring down prices is to increase the productivity related to the making of the market good, which is all about increasing the number of hands and machines at work in the creation of the good. The Fed is not equipped to do any of this, nor demand any of it.
Which brings us to inflation. To say that rising prices cause the latter is like saying that suntans cause the sun to shine. Causation is being reversed.
So, what is inflation? It’s not too much money in circulation, nor is it too much money chasing too few goods. All exchange in a market economy is products for products, in which case the money that circulates in the greatest quantity is logically the most trusted money; as in the monetary units least prone to devaluation by monetary authorities.
As for inflation allegedly being too much money chasing too few goods, such a definition suggests devalued money actually rises in circulation as producers seek equal value for what they bring to market. See above to see the folly of the inflation definition.
Inflation is a shrinkage of the unit of measure. Nothing else. The only problem is that when inflation allegedly reared its ugly head in 2021-22, the dollar was mostly stable in the constant that is gold. And if gold is too low rent to be considered, the dollar during that same timeframe was rising against foreign currencies. Which is just a way of saying that if 2021-22 was inflation, it was the first in the history of mankind during which the unit of measure (in our case, the dollar) didn’t shrink.
Which brings us back to where we were: prices of a myriad of market goods undeniably rose in 2021-22, but the dollar wasn’t falling then. Meaning there was no inflation as certain prices rose in concert with other market goods falling in price. Despite this, the accepted wisdom is that the Fed is uniquely situated to – yes – bring down market prices. Once again, what a dangerous consensus.
