Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

The Great Myth of the Inflation Cure

Economics / Inflation May 06, 2011 - 04:36 PM GMT

By: Douglas_French

Economics

Best Financial Markets Analysis ArticleParents probably dream of sending their kid to the University of Chicago. Next to the Ivy League or Stanford, the Chicago school is near the top of the heap. Only 27 percent of applicants are admitted. To be among the roughly 15,000 means prestige and an education to build a lifetime on. The cost for tuition and fees: $39,381. Room and board is another $12,000 or so. Add books and other stuff, and the total Chicago-school experience costs $54,290 a year.


Students learn from the likes of University of Chicago economics professor Casey B. Mulligan, who believes what the economy needs right now is a little inflation in all the right places to make things better. Professor Mulligan writes for the "Economix" section of the New York Times, which goes about the task of "Explaining the Science of Everyday Life."

Mulligan writes that normally inflation is harmful, but "these days inflation may do less harm than good." He points out that the prices of most goods march upward over time and that this "general increase in consumer prices is called inflation." Of course that's not true. The increase in prices is the result of inflation, which is the increasing of the supply of money: thus the term "inflating" the money supply.

The Chicago economist then writes that the Federal Reserve is charged with limiting inflation, "which it can do over the long run by limiting the supply of money and similar assets in the hands of the public."

In the long run, the Federal Reserve has decimated a dollar's value down to 2 cents in the just short of a century it has been around. In August of 1971, M2 money supply was $685 billion, in March 2011, M2 was $8.9 trillion.

Mulligan writes that people complain about rising prices, but forget that their wages are going up at the same time, so consumer purchasing power is unharmed. Inflation-adjusted wages have been flat to negative. It has taken two incomes to pay for a household for decades now. Perhaps Mulligan should get out more.

Seniors should quit bitching, according to Mulligan because, "Social Security benefits automatically increase with wages in the economy, and thereby automatically increase with inflation in the long run." However, according to Social Security Online, "Under existing law, there can be no COLA [cost-of-living adjustment] in 2011." Why?

As determined by the Bureau of Labor Statistics, there is no increase in the CPI-W [Consumer Price Index for Urban Wage Earners and Clerical Workers] from the third quarter of 2008, the last year a COLA was determined, to the third quarter of 2010.

So the government says there is no price inflation and so no COLA for you, retirees. Retirees know better and so does John Williams at Shadowstats, who says prices are increasing at a 10 percent rate.

"While Mulligan sees Bernanke with a fine-tipped artist's brush, the Fed is actually using a spray gun with an unknowable fan size."

Government spending leads to government borrowing, which leads to inflation when central banks create money out of nowhere to fund that debt. However, the Chicago economist claims his work shows that inflation is not associated with increased government spending.

Rightly, Mulligan points out that taxes crimp saving and investment. But for his big finish, Mulligan claims that since so many people are underwater on their mortgages and because this is hampering economic growth, "an inflation that harmed banks and helped homeowners might be an overall improvement."

One gets the impression that in Mulligan's ivory-tower world, Ben Bernanke creates money like Picasso painted a picture. After careful contemplation, staring at the canvass (economy), Ben dabs his brush into his palette, and then, calmly and carefully, applies the proper color and amount of paint (money), a gentle stroke, in just the right spot.

F.A. Hayek, who joined the Committee on Social Thought at the University of Chicago in 1950, believed that money printing could not be used to assure total employment or to pump up the prices of desired assets whether they be houses or something else. It was impossible for central bankers to know where the money would go or what the exact effects would be.

Hayek said,

In the study of such complex phenomena as the market, which depend on the actions of many individuals, all the circumstances which will determine the outcome of a process … will hardly ever be fully known or measurable.

So while Mulligan sees Bernanke with a fine-tipped artist's brush, the Fed is actually using a spray gun with an unknowable fan size. The money goes some places and not others.

There are bubbles in art prices, while tract-home prices sink. Catfish prices are jumping, but television prices are sinking.

Peter Klein wrote that while at Chicago Hayek found himself among a dazzling group, with an economics department led by Frank Knight, Milton Friedman, and later George Stigler.

Back in 1950, having Hayek and Knight teach your kid economics would have been worth the price. But $50,000 for Professor Mulligan's theories? Try the Mises Academy instead.

Douglas French is president of the Mises Institute and author of Early Speculative Bubbles & Increases in the Money Supply. He received his masters degree in economics from the University of Nevada, Las Vegas, under Murray Rothbard with Professor Hans-Hermann Hoppe serving on his thesis committee. See his tribute to Murray Rothbard. Send him mail. See Doug French's article archives. Comment on the blog.

© 2011 Copyright Ludwig von Mises - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules