Does an "Inflationary Problem" Exist?
How does one respond when a friend, colleague, professor, or one of the most decorated economists on the planet, claim they don’t foresee and inflationary problem? Janet Yellen, US Treasury Secretary claims, as reported by Reuters:
I don't think there's going to be an inflationary problem. But if there is the Fed will be counted on to address them.
Henry Hazlitt dedicated an entire book on inflation, opening with the sentence:
No subject is so much discussed today — or so little understood — as inflation.
That was nearly 60 years ago! Going back to Mises, it was addressed, yet ignored for over a century!
The problem starts with trying to gauge your interlocutor's understanding of “inflation.” There’s the commonly accepted idea of inflation being a general “increase in prices,” but inflation originally signified the act of increasing the supply of money and credit, then during the last century this became less widely used. Now, the act of increasing the money supply by even several trillions of dollars a year is considered routine policy; what was once dubbed inflation is now called stimulus.
Should they remain fixated on the idea that inflation means price increases measured by the CPI, steer them in the direction of illustrating various problems with inflation calculations. These problems have been cited for several generations and even in my recent article Inflation: The Art of Moving Goal Posts. By understanding how inflation data is compiled, what’s omitted, what’s included, and the immeasurability of the idea itself helps cast doubt on the mainstream narrative.
But if inflation calculations are inherently flawed, are there other ways to convey that society already has an “inflationary problem” at hand?
Looking at median sales prices of homes in America, we see prices have steadily risen, save for the previous recession where prices declined. Interesting how housing prices have sharply increased during this recession; we can only speculate as to how much this is caused through central bank intervention.
You can also point to continual all-time highs in the stock market, the rise of crypto currencies, and the burgeoning NFT market, all occurring when our future has never looked so uncertain, in the face of the money supply, national debt, and stimulus reaching unheard of levels.
Unfortunately, the unaffordability of life through increase in asset prices and associated debt level don’t matter much to inflationists. It’s the general price increase in necessities such as gasoline and toilet paper which matters most.
Should all else fail, and the inflationary problem remains unnoticed, try pointing to a country like Venezuela, noting how their money supply has risen on an upward trajectory. It’s unlikely anyone could deny that “maybe,” the cause of their hyperinflation and currency collapse was a result of a dramatic explosion to their money supply, M2 now standing at 1 Quadrillion VEF! (The chart below is in millions).
Strange days indeed. And the task of discussing problems with inflation persists. Often difficult to prove until it’s too late, two different definitions of inflation create complexity and having assets excluded from already faulty inflation calculations doesn’t help. Being told by experts that inflation isn’t yet a problem makes the public’s understanding of the topic difficult to grasp. All the while, the commonly accepted method of national default is by way of printing a currency into oblivion, suffering the consequences of default through hyperinflation.
While dinner table economic talk may work with those whom you keep close company, not many of those who desire a free market appear to keep company with those deciding the narrative for the entire planet. What can be said to someone like Yellen or the Fed who gets paid to seemingly ignore the basic history and principles of inflation? Unfortunately, if it won’t come from you, then we can only hope Congress will do the right thing…