Blame the government and the Fed for inflation.
In Musk’s words, “The obvious reason for inflation is that the government printed a
zillion more dollars than it has. This is not super complicated.” They and other luminaries subscribe to the inflation sophism: “too much money chasing too few goods.”
Yes, we’ve had “too few goods,” due to a pandemic perfect storm — depressed U.S. oil production and manufacturing output, severe supply chain disruptions and war-like labor shortages — but that won’t endure. It was exacerbated by Russia’s invasion of Ukraine, which has radically reduced global purchases of Russian oil, grain and fertilizer and drastically diminished Ukrainian grain exports.
Meanwhile, our economy rebounded much faster than expected (due largely to the dollars pumped-in by the government and Fed), reviving demand that couldn’t be readily met.
It’s true that when our economy was blindsided by COVID, the government borrowed trillions to send stimulus money to most Americans, and — as it had after the financial crash — the Fed electronically “printed money” to buy nearly $5 trillion of government debt and mortgage securities.
But according to a Washington Post analysis, most of those dollars can’t possibly have stoked inflation — because the financial institutions the Fed paid parked over $2 trillion
in their accounts at the Fed, and American households saved a big chunk of their stimulus, banking about $3 trillion. The Post quotes a former Treasury Department official: “The money supply went up, but… they’re not spending it.” In fact, money is moving through our economy more slowly than at almost any time in 65 years.
Clearly, what impelled inflation was the unprecedented confluence of supply and demand incongruities as a result of the pandemic and war in Ukraine, not “too much money.”
So it’s understandable Fed Chairman Jerome Powell recently said, “Now, we think more of just the imbalances between supply and demand in the real economy rather than monetary aggregates” (our total money stock, referred to as M2, is the paramount monetary aggregate). A refrigerator and pantry stuffed with food won’t make you fat unless you overeat; likewise, even an economy awash with dollars doesn’t inevitably induce lending and spending.
President Biden — despite stellar growth and employment stats — is unfairly maligned for stoking inflation. Historic money metrics further undermine the Bezos/Musk fallacy.
Since 2020, M2 has expanded about 50 percent; total inflation, as measured by the Consumer Price Index (CPI), has been less than 15 percent. From 2010-2020, with the Fed still ladling lucre onto our economy to resuscitate it from the Great Recession, M2 almost doubled — but CPI increased only 19 percent.
Annual inflation lingered below the Fed’s 2-percent target.
There’s been a similar non-proportionality between M2 and CPI and between annual M2 growth and CPI increases for 52 years. M2 is over 22-times larger than in 1970, but the CPI is only seven-times higher — a 3:1 ratio of M2 growth to inflation.
This disconnect — and the fact that additional money in the economy isn’t automatically lent and spent — is related to another rarely-mentioned reality: Added dollars fuel not only consumption but investment — which stimulates increased productive capacity, business formation and expansion, R&D that spurs innovation and which can draw more people into the workforce. These counteract inflation by adding to output, lowering prices and curbing compensation hikes.
Related video: The jump in mortgage rates is likely to slow the U.S. housing market.
Amazon and Tesla epitomize how this works. Bezos and Musk built their behemoths when Fed policy was accommodative; investors slung cash at startups. Now Amazon restrains inflation more than any company in history. Tesla collapsed electric vehicle costs, making EVs affordable to a large swath of Americans. SpaceX has astoundingly lowered the cost of space travel.
Yet the Fed and a lot of smart people cling to the canard that Fed tightening is necessary to tame inflation — even if it results in a recession.
Indeed, with one exception, the Fed has brought on recessions with every tightening cycle that continued for over a year — the more prolonged and pronounced the Fed funds rate increases, the longer and deeper the recession. The lone exception was in the middle of the raging 1990s tech boom, which the Fed eventually did kill by more than doubling the Fed funds rate from its 1994 trough.
Many liken today’s inflation to the late 1970s — but that was brought on by the sudden ascendence of OPEC as U.S. oil production was imploding and President Nixon’s wage price controls, a cynical ploy to forestall Fed tightening and unemployment during his 1972 campaign. Nixon’s scheme fomented horrific distortions across our economy that ended up supercharging the inflation spiral. Unemployment eventually soared alongside inflation, a cataclysmic combination that never occurred before or since.
Most economists erroneously extol Paul Volcker, the imperious Carter-appointed Fed chairman, for ending that inflation. The horrendous 1982 Volcker recession inflicted untold misery. Unemployment peaked at almost 11 percent — nearly a full point higher than during the Great Recession. In truth, that inflation was conquered by Reagan’s lower tax rates and big investment tax incentives, which substantially boosted productive capacity, as well as his deregulation of energy prices, which promoted domestic production, and his indexing income tax rates to the CPI.
How do we know it wasn’t the Fed that “saved” us from this inflation? Because it almost evaporated after Volcker, amid one of our greatest peacetime booms, with declining Fed rates, Reagan’s massive military buildup and a ballooning budget deficit — all traditionally thought to be inflationary. Over the next 37 years, the CPI increased little more than it had over just the preceding 12 years. During the 1990s tech boom, our longest peacetime expansion, inflation actually dropped to its lowest level since the mid-1960s.
White House Advisor Brian Deese on Inflation.
The Fed and haughty experts ignore that while higher prices are certainly painful,
they’re far preferable to the trauma of losing a job — and at least somewhat neutralized
by compensation increases. Social Security is indexed to the CPI, significantly insulating
nearly 50 million retired seniors.
Fed tightening also swells the value of our already overvalued dollar,
making U.S. exports more expensive and imports cheaper, another blow to our middle-class workers — and abjectly antithetical to the crucial goal of Americanizing our supply chain.
The “conventional wisdom” that the Fed must choke the economy to contain inflation
is an orthodoxy that should go the way of the ancient medical practice of bloodletting.
What’s more, these momentous money tightening decisions are made by an unelected seven-member board of governors, often bulldozed by the Fed chairman. That a group smaller than a jury arrogates the power to dictate the availability of dollars for our entire $24 trillion economy would be considered un-American had it not been normalized by
the elites. It’s akin to the government empowering a tiny, unelected council to constrict the food supply for our whole population to overcome obesity.
While the Fed is ineffectual at achieving “soft landings,” it’s proven quite adroit at ameliorating financial crises and severe slumps. The Fed headed-off catastrophes following the 2008 financial crash and at the pandemic’s onset. So, the Fed’s freedom to combat contractions should be unfettered.
But the Fed’s unchecked power to tighten the money supply must be rescinded.
The Fed funds rate should be permanently set at half GDP growth — or much lower, as it is now, during and after pandemic-level emergencies. And the Fed’s authority to take other contractionary actions should be strictly limited. The current Fed tightening spree should be stopped.
Oddly, many free-market champions are terrified at the prospect of monetary prerogatives being devolved from the Fed star chamber to private lenders (under a regime of sound practices). Obviously, even if they had a zero cost of funds, lenders would want their loans repaid. They’ll maintain ample lending discipline based on borrower creditworthiness and business conditions, which, being closer to the ground, they’re far more qualified to assess than the Fed.
Many who laud the Fed’s current tightening crusade — which, based on history, may well lead to a recession — are in cushy financial situations. Perhaps if they were subject to being laid-off, having their hours cut or losing tip income, they wouldn’t so blithely endorse such a destructive policy.
Lee Spieckerman is a political strategy and policy consultant and frequent network television and radio commentator. He was an advisor to Newt Gingrich during his
2012 presidential campaign and to Texas Land Commissioner George P. Bush during
his successful 2018 re-election campaign. Previously, he was a longtime media industry executive and consultant. Follow him on Twitter @spieckerman
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President Biden raised eyebrows on Monday when he spoke about what he considers sensible restrictions on “high-caliber weapons” also in the wake of the horrific mass shooting at an elementary school in Uvalde, Texas, last week.
The president recalled visiting a trauma hospital in New York, where he explained doctors showed him X-rays of gunshot wounds that were caused by different firearms.
“They said a .22-caliber bullet will lodge in the lung, and we can probably get it out —
may be able to get it and save the life,” Biden told reporters outside of the White House.
“A 9mm bullet blows the lung out of the body.”
He went on to claim “there’s simply no rational basis for [high-caliber weapons] in terms of thinking about self-protection, hunting.”
So while most Democrats have targeted what they call “assault weapons”
in the wake of the mass shooting, Biden appears to be setting his sights on handguns, too, which isn’t the first time he’s singled out one of the most popular firearms in America.
He also repeated a false claim about the Second Amendment and cannons.
“The Constitution, the Second Amendment was never absolute. You couldn’t buy a cannon when the Second Amendment was passed,” Biden said. “I think things have gotten so bad that everybody is getting more rational about it.”
The Washington Post has previously given him four Pinocchio’s for this claim, noting
that no federal law existed about which types of weapons private citizens could own.
“Moreover, Biden has already been fact-checked on this claim — and it’s been deemed false,” fact checker Glenn Kessler continued. “We have no idea where he conjured up this notion about a ban on cannon ownership in the early days of the Republic, but he needs to stop making this claim.
Florida is already a gun-friendly state. Floridians don’t need another law to make it even easier to put deadly weapons in the wrong hands.
It shouldn’t be hard to defeat constitutional carry in a state where the very words, “Parkland” and “Pulse” are synonymous with gun violence.
Poll after poll after poll shows a majority of Americans favor some forms of gun restriction. Ban on military-style, assault weapons? Check. Implement universal background checks? Yes. Restrict the sale of high-capacity ammunition magazines? Sure. Allow family members and/or law enforcement to petition a judge to temporarily remove guns from persons seen as risks to themselves or others? Of course.
Good luck getting any of that enacted, though.
DeSantis, as well as Republicans in Congress, particularly in the U.S. Senate, have stood firm in opposition. Backed — some might say “paid for” — by the gun lobby, these officials have offered thoughts and prayers, talked up the need to address mental health and rein-in social media, while standing firm against measures to address gun proliferation.
Columbine High School, Sandy Hook Elementary, Marjory Stoneman Douglas High School and now Robb Elementary — after so much carnage, you’d think this time the response would be different.
It’s not shaping up that way. Congress remains divided on what steps to take to address school shootings, meaning, most likely, nothing gets done. For more than 30 years, the National Rifle Association has been pushing constitutional carry, with Georgia being the 25th state to approve a law the association believes allows law-abiding individuals to carry weapons without a government-issued permit. Florida is clearly in the NRA’s sights.
That momentum continues even amid the anguishing details coming out of Uvalde, Texas, where Salvador Ramos used an AR-15-style semi-automatic rifle to kill 19 children and two teachers at the Robb Elementary. According to authorities, shortly after his 18th birthday this month, Ramos legally purchased the rifle used in the shooting and another one.
He had no criminal or mental health history and in Texas you can’t buy a Budweiser
at 18 but you’re welcome to build an armory of AR-15s.
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Florida has a gun reform advantage over Texas. After the Parkland shooting in 2018,
state lawmakers gave police the ability to seize firearms from anyone deemed a danger to themselves or others. The bill also raised the age requirement to buy a gun from 18 to 21,
a provision the NRA still maintains is unconstitutional.
But even as children’s blood has barely dried, after another tragedy that has left so many grieving, gun rights advocates say this is not the time to politicize the issue. Someone should tell that to Gov. DeSantis.
Bonus: Why restrict ‘good’ gun owners, resident asks President Obama at town hall.
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