Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in the METAVERSE Stocks Universe - 8th Dec 21
Stock Market Sentiment Speaks: I Expect 15-20% Returns For 2022 - 8th Dec 21
US Dollar Still Has the Green Light - 8th Dec 21
Stock Market Topping Process Roadmap - 8th Dec 21
The Lithium Breakthrough That Could Transform The Mining Industry - 8th Dec 21
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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