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Supply-Side Split Over Inflation

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02/22/2006

I have previously accused supply-siders (See for example here and here ) of having a double standard over their inflation indicators, such as gold and commodity price indexes, choosing to ignore them when they -as they do now- show significant inflation. Both gold and various broader commodity price indexes have increased sharply in the last few years, particularly the latest few months, yet Larry Kudlow and other NRO writers either completely ignore this or argues that it don't matter because bond yields are low or because commodity price indexes in euros or yens have risen even more.

Yet, it seems that this was a over-generalization. Apparently, there are a few supply-siders , including Brian Wesbury and sometimes NRO contributor Donald Luskin who argues that the commodity price boom indicate inflation. Now, even Jack Kemp joins this group, calling on Ben "Blackhawk" Bernanke to drop fewer dollar bills from his helicopter. He quotes Luskin as saying that the Fed have pursued a too loose monetary policy during the last few years.

Interesting conversion, if sincere, as Kemp as late as two months ago warned of a "excessively tight" monetary policy.

Meanwhile, Jerry Bowyer (author of a book called "The Bush Boom") at NRO , attacks these supply-siders , arguing that gold is , if not a barbarous relic, then at least a misleading "mania" attributable to "Jude Wanniski's shadow". He argues that since the consumer price index haven't accelerated, the gold price approach is wrong. Yet even apart from the fact that the CPI have in fact accelerated (to 4% year-over-year in January), it is well worth noting that as late as 16 days ago did the same Bowyer use a commodity price index (Needless to say, he uses the commodity price index which have increased the least, although even that index have risen significantly in recent months) not as a leading indicator of inflation, but as the definition of inflation.

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