Biden Doesn’t Understand Inflation, and That Will Harm Generations

P. Gardner Goldsmith | April 7, 2022
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In his terrifying novella “Aryans and Absinthe,” first published in 1996, and now part of his collection, “Aftershocks and Others,” author F. Paul Wilson expertly sets his story in decadent Weimar Germany, and provides an ingenious twist on the “monster” tale.

The monster? It's inflation.

It would behoove Joe Biden, Congress, the Federal Reserve, pop media, and most politicians across the U.S. to read that superb tale and wake up to the horror story that is inflation.

They seem to think it’s simply a rise in prices that just “happens” -- usually due to whatever distraction they cite (phenomena like natural disasters, Vladimir Putin, “unanticipated increased demand,” and on and on) - like a plot twist in a never-ending fable.

But, at heart, inflation is a monetary problem caused by government or a government-licensed central bank issuing fiat cash and/or keeping interest rates artificially low in order to facilitate rampant government spending (spending that can’t entirely be funded by the more widely recognized evil of taxation.)

And, as can be seen in Biden’s rhetoric and the promotion of it from establishment rags like The New York Times, some folks could learn a lot from F. Paul Wilson.

It took three NYT reporters to write:

President Biden on Monday proposed a $5.8 trillion budget that includes significant increases in funding for the military and police departments, along with higher taxes on corporations and the wealthiest Americans.

They saw no need to mention that his “higher taxes on corporations and the wealthiest Americans” are going to hurt everyone and will include a proposed tax on “unrecognized capital gains” otherwise known as a PROPERTY TAX that will push assets away from the U.S. and cause disastrous shifts in savings and investment. And they saw no need to contradict the erroneous notion that there’s some kind of constitutional “power” to hand federal cash to “police departments,” further eroding local control and ties to community values.

Instead, the NYT depicts this proposed spending as valuable, and just-in-a-nick-of-time. In their parlance, Biden is “pivoting” in order to handle new crises, focusing:

…on issues worrying swing-state Democrats ahead of the midterm elections — including rising consumer prices, crime and health care.

Not one of which the Constitution specifies as a federal issue, but all of which have been screwed-up, in whole or in part, by the self-congratulatory gangsters in DC and by their monstrous programs and never-dying institutions – like the Federal Reserve.

And, besides all those points the NYT avoids, the paper reinforces the fantasy about inflation I noted above.

The request to Congress for fiscal 2023 reflects growing security and economic concerns at home and overseas, with Mr. Biden proposing a 7 percent increase in domestic spending that includes priorities like anti-gun violence initiatives, affordable housing and manufacturing investments to address supply chain issues that have helped fuel rapid inflation.

One could write treatises on the impropriety of the "anti-gun violence initiatives" and "housing" and "manufacturing 'investments'" -- but let's focus on the last bit, about "supply chain issues that have helped fuel rapid inflation."

This is dangerously incorrect.

Inflation is an expansion in the money supply: an increase in aggregate currency units that eats-up the natural upward productivity curve set in motion by voluntary exchange, competition, resource discovery, skill acquisition, and all the other self-adjusting, life-bettering aspects of the free market.

What most politicians and reporters call “inflation” is actually the resultant price increase that the inflated number of monetary units have bid into the stratosphere.

Thus, as Manuel Tacanho writes for the Mises Institute:

The government’s monetary agency and the current fiat money system are the cause for today’s increasingly inflationary and chaotic monetary situation. Not corporate greed, speculators, free-market capitalism, Vladimir Putin, or the weather.

That’s precisely right. And for the NYT writers and editors who might not be familiar with it, the term “fiat” here means “by government command.” It’s tough to call America the “land of the free” when the government controls the money you can use in legal purchases.

Adds Tacanho:

When you have a fiat money system, which means central banks can easily, artificially and systematically increase the money supply, almost like a magic trick, inflation (mild or severe) becomes the norm. And this inflationary process gradually destroys the purchasing power of the currency resulting in higher prices.

Absolutely right. The mechanism by which this is done is called “fractional reserve banking,” whereby a government bank, or government-created central bank (like the Fed) has the legal monopoly on issuing money, then it claims to have a certain amount of a valuable commodity in storage (something the Fed claimed it had in gold from 1944 to 1971, when Nixon shifted the Federal Reserve Note to be tied to OPEC sales of oil, a link that has been called the PetroDollar, and which the Russians just wisely undercut by tying the Ruble to gold) and said bank then issues more cash without increasing its store of the valued commodity.

Essentially, it’s legalized fraud.

Imagine a private banking system wherein competing bankers offered paper “money” redemption slips for their claimed stores of gold. You could trade your redemption slips to others, and they could turn in the slips for the gold.

If the bank issues more redemption slips than it can match with the hard commodity, that’s fractional “reserve”: they are lying to customers, and people would not accept that currency, because it’s a rip-off.

Tacanho observes:

But because the state is inherently violent and coercive, holding the power to legislate and enforce legislation, it is therefore inevitable that the government will, through political trickery and economic lies, undermine a sound money system in favor of the inflation facilitating fiat money system. This is why the state’s most preferred monetary system is one based on fiat currency protected from competition by legal tender laws as opposed to sound money by monetary freedom.

And, as demonstrated by the NYT, most people in the popular media don’t get this, or, if they do, they want government to retain that wicked power.

Such is the depth of the sea of economic misinformation and miseducation in which the general public is drowned. Perhaps, if the public knew that since the establishment of the current US central bank in 1913, the dollar lost more than 95 percent of its purchasing power relative to gold, they wouldn't blame the inflation crisis on ‘corporate greed.’

Yes, we recently saw White House Press Secretary Jen Psaki ingraciously do just what he describes.

But this error is not solely the purview of radical leftists.

Related: Record Inflation: Year-to-Year Prices Rise Most In 40 Years | MRCTV

Even a hero of conservatives, the oft-educational economist Milton Friedman, got it wrong when it came to inflation. As a teenager, reading one of his books, I recall having conversations with my father about Friedman’s attempt to give audiences a good example of inflation. Friedman cited oil being either in high demand or in low supply. This, he explained, would inspire higher prices, which would be translated into higher gas prices, which, in turn, would have ripple effects down the line as those higher gas prices forced up the prices of everything made, shipped, or powered by gas.

But that’s not inflation. Those are price adjustments reflecting supply and demand. In that case, if the currency were stable, and not inflated (increased by fiat), one’s money might not get as much of the desired product, but that money has not technically lost its buying power. It is now buying an additional quality/thing: access to the desired product.

And that intangible item has value -- a value that rises and falls based on numerous factors, including the quantity and quality of the desired product or service, the demand for it, the expectation of its future availability, and the costs of alternatives.

Just as it serves no one to depict inflation as a result of avaricious sellers, it serves no one to erroneously depict is as a change in price due to natural causes.

Which brings us to the final, most vitally important, point about monetary inflation: the moral component.

If a storm ruins an orange crop, your money will not buy as many oranges, but part of the thing you will buy will be access to a part of that lower supply. The increase in prices will spur other suppliers to enter the market, or to provide functional alternatives. Nature is something we all handle, and markets reflect that.

But inflation is NOT natural. It entirely is due to human caprice and corruption. Behind it is the desire of PEOPLE to rip off other people and prop-up their own plans and the plans of their connected friends. When a central bank or a government create money out of thin air, their pals get it first. The cronies get to use it before the buying power is depleted. 

As it was in Weimar Germany, and as F. Paul Wilson’s novella brutally depicts, once the average man or woman sees that cash, it’s too late. The predators have gained assets at their expense, and hardship is on its way.

Read the story, and ask a politician or reporter to do so, because the Fed and U.S. government already have inflated the money supply, prices will continue to rise, and Biden’s plan to pour more fiat cash into the fire will simply make things worse.

Related: Media Crib Notes On Inflation From Jen Psaki - FAIL Economics | MRCTV

 

(Cover Photo: Gage Skidmore) 

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