Making Economic Sense
Making
Economic Sense
by Murray Rothbard
(Contents
by Publication Date)
Chapter 82
Inflation And The Spin Doctors
We are all too familiar with the phenomenon of the
"spin doctors," those political agents
who rush to provide the media with the proper "spin" after each
campaign poll, speech, or
debate. What we sometimes fail to realize is that the Establishment has
its spin doctors in the
economic realm as well. For every piece of bad economic news, there is
a scramble to provide a
pleasantly soothing interpretation.
One perennial favorite is our permanent state of
inflation. During the halcyon days of the
1950s and 1960s, the Fed and the
other monetary authorities believed that inflation was
out of control if it went above 2% a year. But such is the narcotizing
effect of habit and
desensitization that nowadays our standard 4% rate is held to be
equivalent to inflation having
disappeared. In fact, the implication is that we have no need to worry
so long as inflation stays
below the dread "double digit," reached for the first time in peacetime
during the inflationary
recessions of the early and late 1970s.
Well, in January 1990, the cost of living index at
least reached well over double-digit
proportions. During that month, the cost of living shot up by 1.1%,
which amounts to more than
13% per year, reaching the disturbing inflationary peaks of the 1970s.
Was there any grave
concern? Did the Fed and the Administration, at long last, reach for
the panic button?
Certainly not, for the economic spin doctors were
quick to leap to their tasks. You see, if
you take out the fastest rising price categories food and
energy--things don't look so bad. Food
went up by 1.8% in January--an annual rise of almost 22%; while energy
prices went up by no
less than 5.1%--an annual increase of over 61%. But that's OK, because
the culprit was the
record cold snap in December, which drove food and vegetable prices up
by 10.2% the following
month (an annual rise of over 122%), and pushed up heating oil prices
by 26.3% (an annual
increase of over 315%).
Take out those volatile (though important)
categories of food and energy, then, and we
get a far more satisfactory "core rate" (defined as consumer price
movements minus food and
energy) of "only" 0.6% for January, an annual rise of 7.5 %. This, the
establishment admitted, is
definitely cause for concern, but it is, after all, well under the
baleful levels of double-digit.
But, we must remember, there are often cold snaps
during the winter, and the allegedly
random effects of the weather always seem to work more strongly in the
inflationary than in the
deflationary direction.
The concoction of the "core rate" is a
plausible-seeming example of a racketeering
general principle: if you want to make inflation go away, simply take
out the price categories that
are rising most rapidly. Lop off enough prices, and you can make it
seem that there is
no
inflation at all, ever. Find some excuse for taking out all the rising
categories, call whatever is
left the "base rate," and presto-changeo! inflation is gone forever.
Thus, during the early years of the Reagan
Administration, housing prices were going up
by an embarrassing degree, and so they were simply taken out of the
index, on the excuse that
consumers pay annual rents, actual or imputed, and at that point rents
had not yet caught up to the
increases in the prices of housing. During the infamous German
hyperinflation of 1923, for
another example, there were respected establishment economists who
maintained that there was
no inflation in Germany at all, but rather deflation, since prices in
terms of gold (which was no
longer redeemable for marks) were going down!
Unfortunately, the poor benighted consumers are
paying through the nose in higher prices
for all the goods in the index (and even more for goods that never get
on the index, such as
brandname products and books), even including houses, food, and energy.
We consumers don't
have the privilege of paying only for "core" goods; nor, unfortunately,
do we enjoy the luxury of
paying in gold.
Since even the core rate is getting disturbingly
high, the establishment economists are
beginning to look around for explanations. One old candidate for blame
has therefore resurfaced,
with several economists pointing out that wage rates went up by a
disquietingly high 5.0% last
year; but since prices went up by the now traditional 4.5 %, this
hardly seems a major point of
worry.
Wage rates have been lagging behind price increases
for years. The real culprit for the
accelerating inflation is the one candidate that the establishment
always tries its best to avoid
fingering: the money supply created by the federal government itself.
After years of the government's creating new money
and pouring it into the economy, the
people are now spending that money, and hence driving prices upward.
But the last group the
federal government wants to blame is itself; besides, money creation is
too pleasant for the
creator and his beneficiaries to give up without a struggle. And only
when the power to create
money, that is, to counterfeit, is taken totally out of the hands of
government will the curse of
inflation truly disappear forever.
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