As the citizens of the European Union and the United Kingdom are increasingly struggling to make ends meet due to record levels of inflation, and as the winter draws closer, a serious cost of living crisis is set to spiral out of control. Skyrocketing energy costs, combined with galloping prices for food and other essential goods and services are bound to erase whatever was left of the “middle class.”
Most commentators believe a growing economy requires a growing money stock because economic growth gives rise to a greater demand for money, which then must be accommodated. Failing to do so will lead to a decline in prices of goods and services which, in turn, destabilizes the economy and leads to a recession or, even worse, depression.
The main role of the Fed, then, is to keep the supply and the demand for money in equilibrium. An increase in the demand for money should be accommodated by the Fed. This is necessary to keep the economy on a path of economic and price stability.
Ivy League professor and Nobel Prize winner, Joseph Stiglitz recently spoke to CNBC providing 3 reasons why the Fed’s rate hikes will make (price) inflation worse. It begins with his analysis, in which no further details were provided, just his conclusion. According to the interview:
Stocks reacted positively to the jobs report released Friday morning before selling off sharply that afternoon on geopolitical fears. The report, which showed non-farm payrolls increased by 315,000 for the month of August, was largely in line with the expectations of market watchers, with major surveys held in the run-up to the release of the report yielding predictions of roughly 300,000.
The number who actually consented to the Constitution of the United States, at the first, was very small. Considered as the act of the whole people, the adoption of the Constitution was the merest farce and imposture, binding upon nobody.
In a market economy, prices are determined by supply and demand: how much of a quantity is being offered and how much value people place on that good relative to other goods. However, with great government power comes potential for great government irresponsibility: artificially lowering prices for some either through outright money printing or by taxing some to subsidize others.
Men are not infallible; they err very often. It is not true that the masses are always right and know the means for attaining the ends aimed at. “Belief in the common man” is no better founded than was belief in the supernatural gifts of kings, priests, and noblemen. Democracy guarantees a system of government in accordance with the wishes and plans of the majority. But it cannot prevent majorities from falling victim to erroneous ideas and from adopting inappropriate policies which not only fail to realize the ends aimed at but result in disaster.
[This talk was delivered on Saturday, September 3, 2022, at the Ron Paul Institute conference in northern Virginia.]
Remember the quaint old days of 2019? We were told the US economy was in great shape. Inflation was low, jobs were plentiful, GDP was growing. And frankly, if covid had not come along, there is a pretty good chance Donald Trump would have been reelected.
