An Inflationary Critique of MMT

Click here to read the original Cautious Optimism Facebook post with comments

6 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff closes out his now finished series on inflation and deflation fallacies by saying a few words about Modern Monetary Theory (MMT) and some of its own fallacies that relate specifically to inflation (preview link for illustrative purposes).

MMT proponent Stephanie Kelton

CO himself has posted many articles about MMT over the last year or two, and now that neither Bernie Sanders nor Alexandria Ocasio-Cortez will be sworn in as president anytime soon, the media’s recent MMT blitz has thankfully died down.

There’s no shortage of problems with MMT to criticize, but today's focus is a particularly gaping contradiction in the theory that he hasn’t yet heard articulated by other economists. That said, as much as he’d like to think he’s happened upon an original idea, someone else has probably thought of it already so anyone in CO Nation who happens to find it elsewhere please feel free to post in comments.

MMT’S OPEN SESAME: NO TAX HIKES?

Two of the many policy soundbites that MMT’ers like to recite are:

“A government can no more run out of dollars than a carpenter can run out of inches”

...and...

“Taxes don’t finance government spending”

The first (dollars, carpenters, and inches) is meant to convey that so long as a government controls the issuance of its own sovereign currency and has few debt obligations in another currency (which qualifies the USA, UK, Japan, Canada, Australia, etc…) then it can never run out of money.

Ironically, a carpenter may not be able to run out of inches either, but he can easily run out of wood which perfectly exposes a huge problem with the “can’t run out of dollars” jingle. That is, yes a government can print money ad infinitum but that doesn’t lead to the creation of real physical resources ad infinitum. There may not be a dollar restraint (actually there is as we’ll see) but there is always a real resource constraint.

Sophisticated MMT proponents such as economists Stephanie Kelton and L. Randall Wray are aware of the resource constraint problem, but promote the slogan anyway which their less informed readers then repeat in social circles and online.

The second soundbite (“taxes don’t finance government spending”) is a paradoxical proverb meant to convey another novel MMT insight: governments can simply instruct their central banks to create and lend them all the money they wish to spend, and taxes only serve the purpose of ensuring the currency’s continued use since governments can require/force their citizens to pay their taxes in that currency. Hence, the public can never completely refuse to use the money and governments can finance their spending programs with borrowing from the central bank’s fountain of paper instead of new taxes or spending cuts (those two fiscal tightening methods being so politically difficult to sell to the public).

Put these two together and we now have the foundation behind the third and crucial MMT claim:

“We can have a Green New Deal, universal basic income, universal socialized medicine, free college education, a government high wage job guarantee, and all sorts of other expensive progressive goodies without raising taxes.”

Not only is this one of MMT’s linchpin selling points, as it promises a huge something for nothing, but it also lays the groundwork for one of the MMT’ers’ favorite rhetorical traps.

When MMT’ers declare the government has no constraint on spending for programs that will literally cost dozens or even hundreds of trillions of dollars—from a current federal budget of only about $4.4 trillion annually—and skeptics retort that “you’ll have to raise taxes sky high to pay for all that,” they savor the opportunity to pounce on the uninformed neanderthals: “Don’t you realize taxes don’t pay for government spending?” The Economics Correspondent has seen many an MMT disciple beam with self-satisfaction believing they have stumped their opponents with such an intricate enigma.

So let’s assume this claim is correct—that government doesn’t have to raise taxes but can still provide a gigantic cornucopia of expensive social programs through massive moneyprinting and borrowing. And whenever debt loads appear to be getting too high, it’s no problem because “a government can never run out of dollars” and the central bank will keep lending whatever it takes to service the debt.

INFLATION

The obvious problem with this theory—quickly recognized by even the layman—is that the moment government spends the new money and it enters circulation the economy will experience price inflation. And when confronted with this problem, many MMT’ers will claim that their visionary form of government financing isn’t inflationary.

One response they use draws from traditional Phillips Curve Keynesianism: If the economy is not at their definition of full employment (which is far below the conventional 5% definition) and idle capacity still lies unused, all that new money won’t be inflationary because it will stimulate more production. Now we already saw that theory flop during the 1970’s stagflation era but let’s grant them for the moment that they really can print away with no consequence so long as unemployment remains above their definition of full employment.

Once their definition of full employment is reached, MMT’ers will argue that there’s still far more room to print money without inflation because everyone is underestimating the extent to which government can stimulate more production with all its deficit spending. Although given that inflation reached double digits in the 1970’s even with stubbornly high unemployment, I’m not as willing to just accept that claim as an article of faith.

The Economics Correspondent was even told once by an online MMT sycophant that printing money isn’t even a source of inflation at all. When confronted with the Equation of Exchange (mv = py) he simply declared the formula invalid without providing a shred of evidence. That’s all it took. Like saying “The law of gravity is not valid, let’s all jump off the Brooklyn Bridge now that I’ve proven there’s no danger.” With the wave of his hand, this one ingenious commenter single-handedly overturned a law of monetary economics that no academic has been able to disprove for well over a century.

BTW, sophisticated academic MMT’ers don’t argue that money doesn’t cause inflation or that the Equation of Exchange isn’t valid “because I said so.” This is also the domain of their fervent disciples.

That said, when you press MMT’ers hard enough, especially the trained academics, they will finally admit that there are limits to how far a government can go printing money before inflation becomes a problem. They rarely express this limitation voluntarily, preferring to lead their followers into believing the printing press can deliver endless gifts to society, and one often has to push and push and push the issue and not let it go like a pit bull. 

But eventually after enough persistence they will finally concede “Well OF COURSE there are real resource constraints. We would never say you can print money forever without eventually causing inflation.”

EVEN INFLATION IS NO PROBLEM. REALLY?

Once an academic MMT’er is forced to admit that there is a limit to how much money the central bank can print and lend to the government before inflation becomes a problem the remedy, almost as if automatically on cue, is “But if inflation becomes a problem, government can always tax the money out of the economy to restrain price pressures.”

As evidence:

“Taxes are one tool governments can use to control inflation. They take money out of the economy, which keeps people from bidding up prices.”

-“Modern Monetary Theory, Explained,” Vox

“Government taxes can be used to keep inflation under control, to control our behaviour (via fees and levies and rates), and to get us to produce things the government needs.”

-“ Modern Monetary Theory: How MMT is challenging the economic establishment,” ABC News Australia

OK we’ve almost reached the punchline. Up until now this is standard MMT doctrine and every economist who has scrutinized MMT has heard this line of reasoning. The final closing criticism is up next:

So as we’ve seen, the big marketing promotion for MMT, perhaps *the* biggest, is that we can have our cake and eat it too. Washington can spend $100 trillion, even $200 trillion on Green New Deals, socialized medicine, free college, universal basic income, and every other democratic socialist’s dream program “without raising taxes or cutting spending.”

But when MMT’ers are pushed hard enough on the inevitable (they say it’s not inevitable, but it is) consequence of higher inflation, they say “Not a problem because government can tax the money out of the economy.”

And therein lies the gaping hole. In the end, the free lunch proposition is false. Ultimately all the programs will require higher taxes after all—despite their promises that taxes don't have to rise—only with the added central bank middleman that prints gobs of money first.

MORE DREAMING

And if anyone thinks those tax hikes will be tiny think again. During the stagflation 1970’s, a monetary expansion that will be small compared to what MMT’ers want for their enormous social programs, inflation hit 15% during some years. If prices rise 15% a year, imagine how large a share of the entire money supply Congress will have to remove through taxation to stop it—and the size of tax hikes needed to do it.

For perspective, consider that federal tax revenues today constitute about 16% of nominal GDP, yet 100% of GDP this year would become 117% or 118% in nominal terms next year, mostly due to inflation. So to get nominal GDP down to a more reasonable level of 102% or 103% of the previous year (this assumes MMT’ers don’t produce a recession with their inflation and taxes), 15% to 16% of nominal GDP will have to be taxed out of the economy atop the 16% of GDP Washington already taxes today.

The math is a little more complicated than just adding fifteen points to the tax rate but yes, Americans’ federal tax burden would nearly double across the board just to control an inflation that will appear tiny compared to what MMT’ers will produce.

In fact, historically every time governments have resorted to the printing press to pay for spending programs they quickly lose control of prices and inflation reaches rates of 25%, 50%, 100% per annum or even higher. To stop a price inflation of 50% per year, Washington would have to tax away a full one-third of nominal GDP on top of the current level of taxation, year after year after year.

And the higher monetary velocity rises, the logical consequence of rising inflation, the greater the share of the money supply the government will have to tax away to get prices under control.

Who knows, perhaps a huge tax hike is really the secret endgame of some MMT proponents. After all, MMT’ers are heavily aligned with ultra far-left progressive movements and even Paul Krugman accuses them of going too far with their big government largesse.

And there’s two more problems with the MMT panacea of taxing inflationary money out of the economy: First, it assumes Congress can even find the wherewithal to raise taxes without being thrown out of office. Raising taxes under MMT will be more politically unpopular than it is now. How many politicians will tell their constituents, already angry at rising prices, that their taxes are going up?

And assuming Congress and the White House can get the tax hikes passed without a revolt then the second and probably most preposterous assumption is that once Congress gets its hands on a huge share of the nation’s money supply elected politicians will dutifully destroy the money in the name of fighting inflation.

Anyone who thinks Congress and even presidents, when given trillions or even tens of trillions of new dollars in tax revenues to play with, won’t resort to spending it to subsidize their districts and buy votes needs to have his head checked. In fact, the Correspondent predicts that the least disciplined and most profligate spenders of that new tax revenue will be the MMT proponents themselves—the likes of Bernie Sanders, AOC, Ilhan Omar, and the rest of The Squad.

So the final result of MMT will be the worst of both worlds: higher taxes *and* higher inflation.

CATO monetary economist George Selgin, of whom the Correspondent is a huge fan, likens MMT’ers to road show salesmen promoting their latest perpetual motion machine. They promise limitless mechanical motion and energy, but when you ask them about the wire running under the tablecloth into the wall they assure you it’s nothing important. If you continue to press them hard enough and force them to answer, eventually they admit it’s an electrical cord but that it doesn’t change the novelty of their new invention. In the end, according to Selgin: “There’s nothing new that’s true, and nothing true that’s new in MMT.”

Inflation and Deflation Fallacies Part 6: “Cost-Push,” “Demand-Pull,” “Wage Pressures,” and a Host of Other Official Excuses for Inflation, Part 2 (wonkish)

Click here to read the original Cautious Optimism Facebook post with comments

6 MIN READ -  The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff at last wraps up his series on inflation and deflation fallacies with its most eggheady column saved for last. What about those complex counterarguments defending the government's position on the causes of inflation?

IV. MORE SOPHISTICATED COUNTERARGUMENTS: “WHAT IF CONSUMERS HAVE MORE MONEY” AND “COST-PUSH BEGETS FALLING OUTPUT”

As we discussed in Part 1, most government-provided alibis for inflation (other than moneyprinting by the central bank) can be proven fallacious due to the following axiom derived from the Equation of Exchange:

 ***If consumers and firms are forced to spend more money on any one sector of the economy, they will necessarily have less money left over to spend on other sectors, and the subsequent fall in demand will tend to lower prices for other goods and services.***

In this final chapter we’ll look at some counterarguments to this axiom by proponents of the “cost-push” and “full employment wage pressures” theories.

To read more about "cost push" and "demand full" theories go to Part 1 at:

http://www.cautiouseconomics.com/2020/12/inflation-currencies09.html

The objections are:

1) “The claim that ‘If consumers pay more for certain products they will have less money left over to buy other goods and services which will tend to fall in price is not necessarily true. Consumers can spend more for certain products and still have plenty of money left over if their incomes are higher.”

While this is rarely the case, the counter omits one very serious problem.

The only way all those consumers can have higher incomes is either a) the money supply has been inflated, b) monetary velocity has increased, or some combination of the two. In which case the true cause of the inflation is still not cost-push due to some more expensive commodity like oil, but rather those same old traditional causes to begin with: a larger money supply or higher velocity. 

So the counterargument by its very logic places blame right back to the very culprit it's trying to exonerate.

Here’s another one:

2) “Yes, it’s true that ‘If consumers pay more for certain products they will have less money left over to buy other goods and services which will tend to fall in price.’ But as those prices fall, many firms will lose money or even go bankrupt resulting in lower output of their goods and services. So in the end the resulting fall in real GDP/output ultimately proves the cost-push inflation model.”

This one will take a little more time.

There is definitely a kernel of truth in this theory. If we use an extreme example, what if food prices were to rise fivefold instantly? A lot of consumers would be forced to set aside a huge portion of their budgets just to eat. Then car, leisure, apparel, electronics, jewelry, and other purchases would suffer horribly as would prices for all those products, ultimately leading to business failures and a lot less production in all those sectors. When production falls enough there are, in theory, the same number of dollars chasing fewer goods and voila, inflation—at least according to government economists.

The problem is where this scenario necessarily leads us. Namely, rapidly falling output is itself the definition of a recession—two consecutive quarters of it at least.

So if prices rise for 50 years straight, can the economy be in recession for 50 straight years? Of course not.

Therefore…

If inflation is climbing but real GDP is growing or at least stagnant then the “cost push leading to falling output” explanation is invalid.

That rules out the theory through at least 77%-85% of recent U.S. history.

Let’s take the famous stagflation era of the 1970’s for example, when government economists were blaming cost-push, wage pressures, the weather, and every other culprit they could find other than the central bank. The economy expanded in 31 of the decade’s 40 quarters (77.5%), yet prices were rising rapidly throughout the entire decade (see link, shaded areas denote recession).

So cost-push pressures can’t explain inflation for most of that lethargic decade, yet government economists were publicly blaming it the entire time.

Furthermore, during the 1980’s and 1990’s the economy was in expansion for 68 of 80 quarters (85%) and yet inflation was present all throughout—albeit at a lower pace. Again, cost-push simply has to be ruled out for most of that twenty year period.

The 2000’s and 2010’s fare even worse. The economy grew 69 out of 80 quarters (86.3%).

V. MAYBE ONCE IN THE LAST CENTURY: OIL COST-PUSH AND 1973-1974

So if we look back at the last century or so, the only place where we can find even a tiny sliver of potential validity to this “cost-push reduces output” alibi is a few quarters in 1973 and 1974: the OPEC oil embargo. The shock was so sudden and so great that oil prices did skyrocket rapidly and the U.S. concurrently fell into recession for five quarters. Prices rose by a shocking 15% in five quarters/fifteen months!

But hold on, can we really blame oil cost-push and falling output for that short episode?

Not so fast. A quick glance at what else was happening with the conventional causes of inflation at the same time takes quite a bit of air out of the theory yet again.

During the same period the money supply expanded by 5.9%.

…and velocity rose by 5.2%

When combined these two factors alone already produce a price inflation of 11.4% (1.069 x 1.052 = 1.114) over the same period. So there’s not much room at all for “cost push causes falling output” to explain what little inflation is left.

In order for 11.4% inflation to become 15.0% inflation, we need another 3.2% price increase (2.5% annually over five quarters) or 1.115 x 1.032 = 1.15.

So at the absolute maximum, the OPEC oil embargo cost-push resulting in lower output might have contributed 2.5% annual inflation for fifteen months. And how much of that output decline can be attributed to other factors such as…

-Richard Nixon’s wage controls

-The great bear market of 1973-74 serving as a drag on consumer and investment spending

-A concurrent capital gains tax increase, and

-A two year preceding series of interest rate hikes

…is impossible to say. But for government economists to blame a phenomenon that at most could explain 2.5% inflation, or as little as zero, during fifteen months out of the last century doesn't make for a very convincing theory.

Incidentally, prices rose by 112% (!) from beginning to end of the 1970's, so trying to pin it on a “cost-push” theory that can account for at most 2.5% annualized over fifteen months is indeed missing the forest for a fraction of a tree.

And finally since “stagflation” brought constant high employment with it, none of the decade’s inflation can be explained by full employment wage pressures (another form of theoretical “cost-push” inflation) since full employment was never reached during the entire ten years.

VI. SPOILER: AS ALWAYS IT WAS REALLY THE MONEY SUPPLY

OK, now that we’ve given the government economists their fair hearing, it’s time for a spoiler:

The entire decade-long 1970’s inflation was really caused by the Federal Reserve, which government economists did their best to divert public attention away from. The money supply for the decade measured by M1 rose by 87%...

While real GDP only rose by only 38.5%.

And velocity also rose by 40.6% which is unsurprising. Because the worse inflation gets the faster people tend to spend, or in their minds “get rid of” their money since they know it loses more value the longer they hold onto it.

With the money supply growing that much faster than the real economy, it’s no wonder that from 1971—when the U.S. went off the last remaining vestige of the gold standard—to 1983, the dollar’s purchasing power fell to 38 cents.

Just to put that in perspective, if you retired with one million dollars in the bank to live off of, twelve years later it was worth $380,000, the difference eaten by inflation.

The 163% increase in prices was not caused by cost-push, demand-pull, or full employment wage pressure but simply by printing too much money.

Which brings us yet again to the real cause of inflation that nearly everyone already knows, but government economists never stop trying to conceal. Virtually all price inflation is caused by the central bank’s deliberate policy of creating money faster than real output. Or as Milton Friedman famously said:

“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

So whenever inflation picks up and economists and the media begin blaming cost-push, full employment, demand-pull, labor unions, greedy companies, or the weather, just go to the Federal Reserve’s own website to see if the money supply is growing or not.

Here’s a sample for the last sixty years that pretty much settles it. 

In the end it’s usually all about the money. Everything else is just a smokescreen.

--------------------

 ps. For those interested in learning more about debunking official government rationalizations for inflation the Correspondent highly recommends Henry Hazlitt’s 1960 classic “What You Should Know About Inflation” available free at the Ludwig Von Mises Institute website. 

https://mises.org/library/what-you-should-know-about-inflation-0

Hazlitt is an adherent of the Austrian School and not a Monetarist, therefore he doesn’t promote the role of velocity in inflation. Nevertheless his placement of primary blame on the central bank, the money supply, and particularly his masterful disparagement of official government “excuses” for inflation is a wonderful read. 

Hazlitt is particularly skilled at writing in nontechnical terms for the noneconomist and delivering his message in short, easily digested chapters.

Inflation and Deflation Fallacies Part 5: "Cost-Push," "Demand-Pull," "Wage-Pressures," and a Host of Other Official Excuses for Inflation, Part 1 of 2

Click here to read the original Cautious Optimism Facebook post with comments

5 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff nears the end of his series on inflation fallacies by tackling the steady feed of alibis governments and journalists offer the public every time prices start rising quickly.

In this final two-part installment we will dispel a plethora of official and scholarly-sounding inflation excuses that are routinely repeated by government technocrats and the business press. The attached article is simply a corroboration of themes contained within this article.

https://www.johnlocke.org/update/the-myth-of-wage-push-inflation/

I. WHAT REALLY DRIVES INFLATION

As we’ve discussed previously, the Equation of Exchange (mv = py) defines the only three drivers of price inflation:

1. An expanding money supply,

2. Rising monetary velocity (meaning people and firms spend and banks lend money faster),

3. Plummeting output of goods and services (money chasing fewer goods)

Of these three, the most common by far is an expanding money supply. 

For example, since the establishment of the Federal Reserve System in 1914 the money supply measured by M1 has increased approximately 31,500% (Wenzel, Federal Reserve) which goes a long way in explaining why prices are on average 2,500% higher now than they were a century ago. Yes, the dollar of 1914 is only worth about 3.8 cents today.

The second, monetary velocity, only changes rapidly during major depressions, financial crises, major price inflations, or rapid rebounds from major deflations—all exceptional events.

And finally plummeting output is, after two quarters, by definition a recession. However typical recessions only produce 1% or 2% declines in output with the steeper Great Recession of 2007-2009 slumping closer to 5% over 18 months or at a 3.4% annualized rate. Thus relentless, continuous high inflation is rarely the product of falling output itself.

So when inflation takes off, it’s virtually always due to increases in the money supply.

But whenever inflation “heats up” we begin to hear a litany of excuses—almost as if on automatic cue—flow from government agencies, Fed officials, and many economists that it’s due to anything but the central bank's creation of too much money. These alibis it turn are usually repeated uncritically within the news media.

And for those readers who are old enough to remember the 1970’s, you'll recognize most of these from the stagflation era of Richard Nixon, Gerald Ford, Jimmy Carter, and the first two years of the Ronald Reagan Administration.

II. THE LIST

Keep in mind when reading the government’s/media’s alternative inflation catalysts that the following axiom will always hold true if the money supply is indeed not being inflated:

***If consumers and firms are forced to spend more money on any one sector of the economy, they will necessarily have less money left over to spend on other sectors, and the subsequent fall in demand will tend to lower prices for other goods and services.***

So let’s review the list:

1) “Cost-Push” Pressures. This is the most common cited today. The idea is a rising price for a major commodity—such as oil—makes every product that uses that commodity as an input more expensive. Since the higher cost of the input is passed through to final products, higher prices will spread throughout the entire economy therefore driving widespread inflation.

The implication, as usual, is that inflation is being caused by something other than the central bank’s constant money creation.

While it’s true higher oil prices will make gasoline, lubricants, plastics, chemicals, etc… more expensive to produce and transport, and that the cost of oil-based final goods will rise to varying degrees, this cannot cause a general price inflation because:

If consumers and firms are forced to spend more money on products that use oil as an input, they will necessarily have less money left over to buy other products which will tend to fall in price.

2) “Full Employment” Wage Pressures. This is just a variation on cost-push using a specific and common commodity: labor. The idea is if 5% or lower unemployment is reached, competition for workers will drive up wages and therefore the price of everything else.

But again, if the price of labor-intensive goods and services rises, consumers will necessarily have less money for capital-intensive and automated goods and services which will tend to fall in price.

One might wonder how it’s possible to escape buying anything that doesn’t have labor as an input and how prices couldn’t rise under full employment. While there are some products which are not at all labor-intensive (IT-based products and highly automated production where the initial capital investment has already been made), the difference could also come out of corporate cash reserves, debt issuances, or even profit margins.

Also wage pressures don’t apply equally in full employment. The wage for IT workers in a tech boom may rise due to an insufficient supply, but many union workers might keep the same wage due to long term contracts. 

And the wage for higher paid chemical engineers may not go up much because there is no greater demand in that particular field and those workers’ skills may not allow them to easily jump to an alternative career that pays better. If a chemical engineer is unhappy that he hasn’t gotten a raise, will he really opt to flip burgers or become an orthopedic surgeon instead?

But the biggest problems with “full employment” wage pressures are first, the theory can’t even explain inflation during the majority of the time that the country is not at full employment (75% of the last fifty years)…

https://fred.stlouisfed.org/graph/?g=y8cI

…and even when the country is at full employment the empirical evidence has still not supported the theory.

The U.S. was operating at full employment from late 2015 until the outbreak of Covid in March of 2020. During most of the Trump presidency the unemployment rate was below 5%, even down to 3.5% in late 2019, and yet there was no major inflationary event, nor was the Federal Reserve inclined to raise interest rates to counter inflation. In fact, all that time Fed officials and Keynesian economists were complaining that 1% or 1.5% inflation wasn’t high enough!

There was also full employment during the last four years of the Clinton administration and no inflationary event, although the Federal Reserve did raise interest rates at the very end to stem the record dot-com stock market tech bubble. 

Why no full-employment generated inflation problem? There are several reasons.

-As the unemployment rate drops, previously idle workers become employed, productive workers and total economic output grows. Rising output (more goods and services) acts as a counterbalance that lowers prices, not raises them. 

-Moreover, even at full employment new workers can still be hired who were previously outside the labor force (as we saw in the first three years of the Trump administration) which also boosts inflation-offsetting output gains.

-And as wages rise firms divert budgets away from workers and into labor-saving capital tools and machines resulting in rising output with the same quantity of labor employed (ie. higher productivity), although this process admittedly takes time.

There is even a more sophisticated counterargument in support of the wage-pressure theory with an even more sophisticated rebuttal which we will save for the final column.

3) “Demand-Pull” Pressures. This theory has fallen out of favor somewhat since the postwar decades. The idea is if there is a sudden positive demand shock for a certain commodity or product, the higher market price will spark rising inflation. 

So let’s say consumers go crazy for a new iPhone because it can actually wash your clothes, do your taxes, and run your errands for you. If people are suddenly willing to pay double the previous price for iPhones the theory states the consequence will be higher inflation.

But once again, if consumers are in this case willing to pay a lot more for the new iPhone, they will necessarily have less money left over to buy other goods and services which will tend to fall in price.

4) Finally there’s the basket of miscellaneous excuses used throughout the 1970’s such as labor unions driving up the cost of their members’ wages. Or greedy businessmen who raise prices to boost their profits. There have even been attempts to blame bad weather for inflation pressures.

Assuming any of these occur, as soon as consumers are forced to pay for more expensive products resulting from higher union pay, greedy businessmen, or bad weather they will necessarily have less money left over to buy other goods and services which will tend to fall in price.

UNLESS the central bank expands the money supply. In that case not only will consumers pay more for oil-based products, labor-intensive products, or a space age iPhone, but they'll also have enough new money left over to pay more for everything else.

Which leads us to the real problem.

III. MONEY IS THE REAL PROBLEM

All the alibis of cost-push, wage-pressure, and demand-pull seem like rearranging deck chairs on the Titanic when placed next to the real culprit: a 31,500% increase in the money supply since 1914. 

Looking at any decade period or even a few years shows the same pattern: where there’s inflation, the money supply is growing faster than output. Check out the high inflation 1970's, the decade when government economists were peddling all those theories at once:

https://fred.stlouisfed.org/graph/?g=yjHC

And as if that isn’t enough to settle the matter, there’s one last important piece of empirical evidence refuting all these fictional inflation hobgoblins.

The phenomena of “cost-push,” “demand-pull,” “full employment wage pressure,” greedy businessmen, bad weather, and even some labor unions also existed during the entire pre-Fed era of 1792-1914, when the U.S. money supply was constrained by the bimetallic and classical gold standards. Yet over those 122 years prices actually fell every year on average. The only difference between then and now is the money supply grows much more rapidly today under our monopoly central bank’s fiat money regime.

We’ll wrap up inflation fallacies in the next and final chapter where we’ll dive deeper into a few of the more sophisticated counterarguments by those who contend the claim that “consumers will have less money to spend on other products” is an invalid criticism of their own cost-push theories.

Left Coast Correspondent: Hewlett Packard Enterprise Latest Company to Leave the San Francisco Bay Area

Click here to read the original Cautious Optimism Facebook post with comments

The Cautious Optimism Correspondent for Left Coast Affairs and Other Inexplicable Phenomena views this news as yet another exhibit of the San Francisco Bay Area's failed economic policies... and another opportunity for those failed policies to metastasize into red states like Texas.

Hopefully the CEO will make good on his comments about retaining the work at home model. That way the HP Bay Area workers who vote woke and progressive can stay behind and continue to destroy only their own state while the company's tax dollars relocate to a new one.

Read full San Francisco Chronicle story at:

https://www.sfgate.com/bayarea/article/Hewlett-Packard-Enterprise-moving-headquarters-15767751.php