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  • They Said Inflation Would Be ‘Transitory.’ The Data Say Something Different.

    President Joe Biden once bizarrely remarked on the 2020 campaign trail, “Milton Friedman isn’t running the show anymore.” It shows.

    Earlier this month, the Labor Department reported that the CPI rose at its fastest rate since 1990: 0.9 percent for the month of October and 6.2 percent year over year—faster than Wall Street consensus estimates of 0.6 percent and 5.9 percent, respectively.

    Perhaps most telling, the acceleration in prices still clocks in at 0.6 percent monthly when the volatile food and energy categories are excluded, suggesting inflation is here to stay. Astute observers might notice that the 0.9 percent monthly change in CPI represents faster inflation than earlier this year, and that if current trends continued for one year, next October’s annual price increase would be 10.8 percent. These figures, quite frankly, obliterate any notion that our inflation is “transitory” or trivial. In response, the president declared inflation his “top priority.” Judging by the administration’s economic agenda, this only spells more trouble.

    Most of our economic Brahmins in Washington have misdiagnosed the causes of the current inflation crisis. Watching the chattering classes or browsing through center-left websites, one deduces that there is great consensus among the intelligentsia on who is to blame: you. You buy too much, expect it too quickly, are too dependent on complicated supply chains, and have not adequately respected COVID safety measures, thus ensuring that the virus continues to disrupt the economy. Just lower your expectations, as the Washington Post opines

    Missed in this analysis is the fact that the worst of COVID has been over for quite some time in the United States, and almost all states have eased or eliminated their COVID-related lockdowns and the shuttering of factories and stores. To the extent that the current inflation may be attributable to a virus with a death rate of 0.5 – 1 percent (reported—many people had the virus and never reported it), it is attributable to the unintended consequences of government overreaction—businesses that no longer exist, knowledge no longer employed, human capital lost, higher compliance and transactional costs, etc. Meanwhile, blaming the American consumer is what Frederick Douglass would call “an old dodge.”

    In the 1970s, Presidents Nixon, Ford, and Carter all contended that inflation was to varying degrees due to overconsumption, or excessive demand, and plans like Ford’s “Whip Inflation Now” (WIN, ironically) encouraged Americans to reduce their consumption of goods and services to beat inflation, ignoring the fact that obtaining goods or services at high prices is often better than not obtaining them at all in the name of low prices.

    Ronald Reagan lambasted this line of thinking in his 1980 debate with Jimmy Carter when he asked, “Why is it inflationary to let the people keep more of their money and spend it the way they’d like and it isn’t inflationary to let [President Carter] take that money and spend it the way he wants?”

    Our current policymakers could use a similar chastening.

    Although unspeakable for many mainstream economic thinkers and policymakers, the proximal cause of our accelerating inflation is obvious: massive money printing to fund surging government spending. Since the pandemic’s onset, the American people saw multiple rounds of direct stimulus payments, increased unemployment benefits, unprecedented bailouts of businesses (small and large) across the country as well as states and municipalities, and we saw another $1.2 trillion in infrastructure spending when President Biden signed the Bipartisan Infrastructure Framework, or “BIF.”

    The deluge has been so tremendous that many funds from the last stimulus bill are still unspent. The last two years have seen over $5 trillion in new government spending. Whatever the effect of COVID lockdowns and misallocation of human and physical capital from sweeping orders is doing to exacerbate inflation, the current level of government spending is the elephant in the room. Yet the administration proposes a new elephant breeding program, in the form of expanded government spending, as the solution. The president urges Congress to pass the “Build Back Better” social spending package of $1.75 trillion (on paper—the real cost is likely to far exceed that figure), which will help “fight inflation.”

    Such magical thinking will not stand up to the next few months’ inflation data, and the American people must demand an end to this madness. Government created this inflationary crisis. It could end it tomorrow by reversing the Federal Reserve’s easy money policies, removing barriers to free trade, and shutting off the spigot of its own reckless spending—which is spurs the money pumping.

    I’m not holding my breath for that outcome, but the American public is waking up to the threat of inflation and its causes. Libertarians and economic conservatives should call out the cause of this crisis loudly and often. At this rate, Milton Friedman might be unbeatable in 2024.


    Nathan J. Richendollar

    Nathan Richendollar is a summa cum laude economics and politics graduate of Washington and Lee University in Lexington, VA. He lives in Southwest Missouri with his wife Bethany and works in the financial sector.

    This article was originally published on FEE.org. Read the original article.


  • Interview: Rand Paul Explains What’s Really Causing America’s Inflation Woes

    Consumer price inflation just hit the highest level in 30 years. Prices rose 6.2 percent from October 2020 to October 2021, according to new government data, prompting a new reckoning with “temporary” inflation that’s proving not so short-lived after all. I interviewed Senator Rand Paul, a libertarian-leaning Republican from Kentucky, to get his perspective on what’s driving our mounting inflation woes. 

    “I think inflation is pretty easy to explain and people need to know what causes inflation,” the senator said. “[The federal government] gets debt, then the Federal Reserve prints up new money to pay for the debt, that new money enters circulation, and that expansion of the money supply [leads to] inflation.”

    Paul argued that this kind of inflation, rooted in government policies, is a “bait-and-switch” form of taxation. 

    “Big government politicians offer you things they say are ‘free’: free childcare, free healthcare, free college, free cell phones, free this, free that—but it’s not really free,” he said. “Either someone else is going to pay for it through higher taxes, or they’re going to pay for it through borrowing and ultimately inflation. And it really is a bait and switch because often the same people that are being offered free stuff are also the ones who suffer most through the regressive tax that is inflation.”

    “We have to explain to people the second order of thinking that goes to understanding that it’s not free,” he concluded.

    But what, specifically, is driving the current inflation surge?

    “Really the inflation we have this year is probably a responsibility of both parties,” Paul said, referencing the trillions in deficit-financed spending Congress has passed since the COVID-19 pandemic began. “You know, both parties other than myself and a few others were for all the spending of last year. So we borrowed $3-4 trillion last year, and we’re set to borrow at least that much or more this year.” 

    “I think you may see inflation of 10% or 12% next year,” the senator cautioned. “Now they’re all saying the opposite. The Federal Reserve is saying it’s transitory, but I think the 6% that we’ve got now is based on last year’s borrowing. And I think there’s going to be significantly more borrowing this year. We’ve already spent an extra $2 trillion on a COVID bailout bill, which really didn’t have much to do with COVID, but it was more just a bailout bill, [and now] another trillion on infrastructure.”

    But it’s not just Congress, the senator explained, as the Federal Reserve itself shares a large portion of the blame. 

    “There’s joint blame: Congress is initially to blame for spending money it doesn’t have and then the Federal Reserve says, oh, it’s just our job to paper over this,” Paul said. “It’s our job to buy up that debt and as they do, they create the increased money supply. So really both Congress and the Fed are to blame and they go hand in hand.”

    “If we ran a balanced budget, we wouldn’t necessarily need a Federal Reserve,” he continued. “Basically we have a Federal Reserve to pay for all that debt.”

    Paul warned that if inflation continues unchecked, we could see a “loss of confidence” in US currency and “people fleeing the dollar.” The senator stressed that with the advent of cryptocurrency, people have more alternatives—taking away protection the dollar may have enjoyed in the past.  

    I asked Senator Paul about President Biden’s argument that in order to combat inflation, the federal government actually needs to spend trillions more on his “Build Back Better” climate change and welfare agenda. 

    “President Biden has no idea what causes inflation,” he responded. “I mean, someone should ask him that question. How does [the government] spending more money reduce inflation? How does borrowing more money reduce inflation? That’s some mental gymnastics. It’s hard for me to comprehend.”

    I offered the president’s counterargument, bolstered by liberal-leaning economists, that his bill would hugely increase productivity and thus lower inflation pressures over time.

    “I think productivity comes from ingenuity and market efficiencies, but I don’t think in any way, productivity is increased by government spending,” Paul countered. “In fact, you could probably argue the opposite.” 

    “If you had a million dollars and you wanted to let your representatives decide how to spend it, or a bunch of venture capitalists who look at profit and loss and look at markets and make estimates, neither are perfect,” he continued. “It’s all our guesses about the future. But my thinking is that when it comes to the government, it’s politicized. Whereas the investors will only look at profit and loss because their job is narrowly focused towards trying to invest in things that make money.”

    “The marketplace is always wiser and smarter than the government,” Paul concluded. “[Remember] what Milton Friedman used to say… that nobody spends somebody else’s money as wisely as their own. And that truism will always mean that the government lacks efficiency and lacks really the drive to make the best decisions for investing. So I would say productivity and the productivity of capital… always has to be less with the government.”

    So, the senator warned that if President Biden’s multi-trillion-dollar spending agenda was passed by Congress, it would only worsen, not help, our inflation problems. But Paul noted that this may not happen, because even some moderate Democrats like Senator Joe Manchin are acknowledging the reality of inflation and putting the president’s ambitions on pause. 

    Only time will tell. But if the federal government fails to rein in its reckless fiscal and monetary policies, we may well see inflation get even more out of control. And nobody will be able to say they weren’t warned.


    Brad Polumbo

    Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Policy Correspondent at the Foundation for Economic Education.

    This article was originally published on FEE.org. Read the original article.