I think a lot about inflation, because it is the primary leak in free markets, and the primary reason the developing world has not developed much further, and the primary reason we are in such debt.
So often, we see inflation talked about as something that just happens, like a storm sweeping in from the prairie. It isn’t. It is the result of conscious policy decisions by specific people. We need to be clear, as well, that inflation ALWAYS has winners. That most people lose does not obscure this fact. It is, in fact, a zero sum interaction.
As I have said often, in fact, most of what the Marxists accuse “capitalists” of in general–which is not accurate–is in fact true of those with the power to suck wealth out of the system without creating anything. Industrialists create things. Investors using their own money enable the creation of things. Inflationists use a legally priviledged place within the system to get without giving. I discuss all of this on my other site.
The point I wanted to make here was that inflation will not, in my view, happen in this country without confidence. Until people are confident in the future, they will not borrow money. American businesses are amassing record amounts of cash, that with another President, and without looming massive tax and regulatory increases, would be spent.
My reasoning is simple, and I have discussed it previously. Most price and following wage inflation comes from the fractional reserve system. $1 in what I have termed primary inflation, from the Fed, can be turned into much more. I forget the number, but it is about $28 if memory serves. With 10% reserves, you get 90% created, then 90% of that, and 90% of that.
Self evidently, this process is not always completed. Banks, like anyone else, have to get customers, and if people are self financing–as in the modern environment–then they can’t create much money at all.
Obviously, these facts, too, are why it is hard to track inflation. You would have to know about every disbursement of money from the Fed, and every loan made by every bank, and even then money flows around. It might be stored overseas, then come back, then leave again.
And over and above all this, you have normal market factors. The obvious example is oil. If oil goes up, everything goes up, since everything you buy has to be transported. This is not, properly speaking, inflation. It is price fluctuation in response to market conditions.
All of this is enormously complex. If we accept the existence of the Fed and the fractional reserve banking system, then we must accept the need for economists. I do not, and I do not.
If we had stable money, then ONLY supply and demand would affect prices. We would not need to concern ourselves with a variable prime rate, Fed policy, or inflation. There would be no inflation. It would be mathematically precluded from the system.
At some point I am hoping to attract some of the more clever Marxists out there. My deconstruction still enables you to feel righteous anger, but to direct it in the right direction, and to pursue actually helpful policies.