The Derp and Fall of Inflation Fearmongers … Eventually even charlatans, cranks, and economists notice when the world isn't cooperating with their grand pronouncements. Eventually reality wins. And after four years of making relentlessly wrong predictions about the second coming of Weimar, that eventually has come now for the inflation chicken littles. At least a little. Back in March 2009, the Fed began expanding its first bond-buying program, and the usual suspects began hyperventilating about hyperinflation. They just couldn't conceive how all the Fed's "money-printing" wouldn't end with double-digit inflation, if not people needing wheelbarrows full of cash to buy the most basic of necessities. – The Atlantic
Dominant Social Theme: Printing money doesn't cause price inflation.
Free-Market Analysis: We recently posted an article on the confusion between inflation and price inflation and this article posted at The Atlantic is further evidence of this purposeful confusion.
Why is it purposeful? Because almost everything these days is an argument between those who want to expand freedom in the West and those who want to repress it.
The inflation "argument" is just one more aspect of this.
And since the article itself refers to Austrian economics, we will elaborate by pointing out that the modern sociopolitical and economic conversation is actually aimed at the one discipline of economics that tells the truth: Free-market Austrian economics.
Austrian economics was repressed throughout the 20th century and into the 21st. It has only flowered because of the Internet and is still not taught throughout the West's government-controlled universities.
But on the Internet, where serious conversation about the human condition resides, the parameters are clear. It is free-market economics versus the statists. One can see the argument being played out and one can even see the various gambits used by statists and government-supported intel agencies to muddy the argument.
This article posted at The Atlantic web is a good example of statist – Keynesian – argumentation. It begins by mis-defining inflation and then goes on to attack the freedom movement itself.
The anti-Bernanke crowd has tried not to notice that prices haven't gone parabolic. They've mostly succeeded in this epistemic closure — and even when they haven't, they've quickly discounted reality as just a fad. Their excuses have been as predictable as they have been wrong: either the official numbers are irrelevant, or miss "real" inflation, or will show more inflation in a few more years (just wait and see!). But with core PCE inflation, the Fed's preferred measure, now at an all-time low going back 50 years, it's getting harder and harder to get anyone to listen.
Here are the stories each group has tried to tell.
Charlatans. It's been a bull market for fake populists the past few years. With wages stagnant, households feel like inflation is higher than it is, and they keep hearing that it is from fact-challenged fraudsters. If it's not pop historian Niall Ferguson putting on his tinfoil hat and saying inflation is "really" 10 percent, it's pop pundit Erick Erickson bemoaning rising milk and bread prices that he knows aren't rising.
But the truth is catching up. After playing the "it's-always- 1980" game where stagflation is always and everywhere the problem, Erickson has had to admit that it's just that — a game. And he had to admit it, because Krugman called him on it. In other words, nerds bearing charts beat demagogues bearing derp. (For the uninitiated, "derp", as Noah Smith defines it, means loudly repeating things you believe in the face of contrary evidence).
Cranks. It's also been a bull market for crackpot economists the past few years. Now, so-called Austrian economists did do a good job predicting the housing bubble during the boom, but they could hardly have done a worse job during the bust. They've looked at the Fed's ballooning balance sheet, and screamed that Zimbabwe is coming, Zimbabwe is coming! Well, it hasn't, and it's not.
But that hasn't deterred the Austrians: they think the price of gold shows the "true" inflation from the monetary base expanding, so they've been right all along! But what about now? Gold is down 24 percent from a year ago, and 36 percent from its August 2011 highs — and that despite more "moneyprinting" by the Fed. So where's the inflation now? (And, sorry Austrians, an increase in the monetary base doesn't count if there's no increase in prices).
Let's unpack this. The article tells us that those predicting inflation are wrong because super-money has stayed parked in commercial bank accounts. But it misses the point that this IS inflation. The article stubbornly maintains that inflation is PRICE inflation and does not acknowledge that this is a Keynesian interpretation.
The article goes on to attack Austrian economics by name and to accuse those who believe in free-market economics of incorrectly analyzing current central banking efforts. But is this true?
All informed Austrians have ever said, that we know of, is that central bank money printing must always distort the market – and usually since interest rates are kept low and money printing is high, the bias is inflationary. That is, too much money is being printed.
Finally, the author attempts to change how Austrians have defined inflation, which is merely as an addition to the aggregate money stock. The article specifically states that "an increase in the monetary base doesn't count if there's no increase in prices."
Sorry, you don't get to rewrite definitions just to make a point. Inflation is a monetary increase and it DOESN'T MATTER if the currency circulates or not.
You see? This article is not just an effort at explaining what inflation really is (and it cannot even get this right), but it is also a misinformed attack on Austrian economics, a defense of Ben Bernanke's inflationary policies and ultimately, an attempt to attack fundamental tenets of freedom, which includes the right to free-market money.
The sophists are everywhere these days, and we try to point them out to you as we can.