Tag: inflation

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Accountability folly free trade & free markets general freedom moral hazard property rights responsibility too much government

Poison Is Poisonous

poison, inflation, Venezuela, socialism, free markets, capitalism

Venezuela’s socialist economy has been collapsing.

No big mystery. If, out of hostility to capitalism, a society keeps destroying everything that production, trade, and prosperity depend upon, the economy suffers. The benefits of markets don’t flow no matter what.

One assault has taken the form of hyperinflation — runaway printing of currency, done in part to dissolve government debt. Many Venezuelans are resorting to barter. It’s easy to understand why.

Or is it? A Reuters reporter says that economists say that “the central bank [of Venezuela] has not printed bills fast enough to keep up with inflation, which . . . reached an annual rate of almost 25,000 percent in May.”

So go faster!?

Dude. Dude. The massive expansion of Venezuela’s money supply is what’s causing massive jumps in prices. Just like any other economic good, the medium of exchange is subject to the laws of supply and demand.

Other things being equal, enormously increasing a supply of a good will enormously lower its market value or price. Money, too, has a price — in terms of the non-monetary goods being bought. If the pre-hyperinflation price of a dollar in terms of bread is one loaf and the post-hyperinflation price is one bread crumb, you won’t reverse the decline by printing even more dollars or bolívars even faster.

If you’re ingesting poison, you can’t fight the effects by being poisoned more and harder. The very first thing to do is stop ingesting the poison.

This is Common Sense. I’m Paul Jacob.

 

 

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Accountability folly ideological culture nannyism responsibility

Venezuela’s New Firing Squad

Maduro, Venezuela, socialism, collapse, illustration

We’ve watched Venezuela’s big-daddy socialism descend into dystopia:

  • Arbitrary arrests of political opponents;
  • An economy managed by government decree, in which inflation “may top 700 percent this year” and toilet paper, food and medicine are in terribly short supply;
  • The once oil-rich country has become “the worst performing economy in the world,” with hundreds of thousands of Venezuelans clogging border crossings with Colombia;
  • Meanwhile government workers “enjoy” a two-day work-week to save electricity, avoiding the wasted hours caused by daily blackouts;
  • And President Maduro has decreed that citizens can be conscripted — drafted into service — for 60 days, forced to pick crops.

“Venezuela brings back fedual [sic] serfdom to try to alleviate food shortages,” read one online headline. (Don’t laugh, that may be how we spell “feudal” someday.)

Still believing in magic . . . “Maduro ordered a 50 percent increase in the minimum wage last month,” informed the National Post, “but the latest studies show that salaries still fall far short of the amount needed to obtain basic household goods and food.”

Socialism has failed, again, and in doing so demonstrates something more than economic shortcomings. As the late President Ford warned, “A government big enough to give you everything you want is a government big enough to take everything you have.”

The Venezuelan people have the right to recall the president enshrined in their constitution, a particularly popular right at present . . . but the Maduro dictatorship refuses to take prompt, lawful action to facilitate the recall.

Not to mention unjustly arresting citizens circulating the recall petition or telling high government ministers to fire any government worker who signs.

So much for the socialist revolution . . . now tyrannically blocking a real revolution.

This is Common Sense. I’m Paul Jacob.     

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Maduro, Venezuela, socialism, collapse, illustration

 

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folly nannyism national politics & policies

Doom Fails to Arrive on Schedule

DOOM

Doom is not always bad. I’d appreciate the doom of nonsensical doomsaying, for instance. . . although I doubt that that glorious day will dawn anytime soon.

Equally unlikely is an apology from ABC and Chris Cuomo for pitching, back in 2008, a muddled ABC special, “Earth 2100,” about all the disasters expected to arrive by 2015, among other years.

The idea? Forecast the harm inflicted by allegedly man-made global warming and collateral calamities, via the scientific methodology of being safely vague or just making stuff up. One way the network secured data was to ask viewers to pretend they’re in the future and then “report back.” (Well, it was 2008, a more primitive era. They did things like this back then.)

Here’s a sample of what ABC purveyed as possibly impending:

  • “Temperatures have hit dangerous levels.” (Time for air conditioning and/or heat!)
  • “We’ve got more people, less and less resources. That’s a recipe for disaster.” (Let markets be fully unfettered so we can be sure to get more and more instead!)
  • “It’s June 8, 2015. One carton of milk is $12.99.” (Unless that’s a big carton, no. Try $3 or $4 a gallon.)
  • “We’re going to see more floods, more droughts, more wildfires.” (Good work, Nostradamus!)

We still get storms. (Always had ’em; always will.) And inflationary Fed policy and other bad governance still swirl on the horizon. So let’s have shelter, fire departments, umbrellas, and market-friendlier policies; and let’s not reside on hurricane-prone beaches.

Thanks for the heads-up, Chris.

This is Common Sense. I’m Paul Jacob.

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DOOM

 

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free trade & free markets ideological culture too much government

Their Solution Is Our Problem

J.D. Tuccille at Reason took on journalist Matthew Yglesias’s vox.com video that I wrote about yesterday, focusing on Yglesias’s pooh-poohing of the sheer size of the national debt. Tuccille noted that Yglesias under-reported its humungosity, and that the Congressional Budget Office finds, counter to Pollyanna-liberals, no small reason to worry about the ballooning debt.

But I’m still shaking my head that Yglesias really did argue the federal debt is no problem, because — get this! —  the Fed can always just print more money. 

We know! What he sees as a solution we see as a problem.

The modish government-as-savior view of society seems pure simplicity: major inputs and outputs — money supply, fiscal spending, debt, inflation — all of which liberal-progressives will “expertly” adjust.

Fed this, no wonder people ask questions like “why haven’t we seen inflation, following the huge influxes of quantitative easing?” Well, it is not just about consumer prices, but investment prices, too, which we have long known to be more volatile than consumer goods; investments can easily suck up new money to create an unstable boom, which bursts.

The biggest problem for today’s market recovery — aside from subsidies and wage controls and all the folderol that directly discourage new jobs — is federal government irresponsibility itself (symbolized neatly by the federal debt) which signals to investors and other market participants that they cannot make viable long-term plans.

Economist Robert Higgs called this effect “regime uncertainty.” It’s the uncertainty bred by bad policy.

Just the kind Yglesias and his comrades adore.

Fiddle with the economy’s dials, oh wise ones, and uncertainty seems a certain result.

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets ideological culture too much government

Not a Problem?

Increasing public debt is bad for a number of reasons. Journalist Matthew Yglesias, speaking on vox.com, gives voice to a very different, very Pollyannish perspective: “Debt is just not a problem right now,” he says.

Why?

“The U.S. can never run out of dollars.” After all, the Fed can just print more.

That’s not an uncommon view where I live, near the center of privilege, Washington, D.C.

The video starts with an instruction: “Stop freaking out about the debt.” It sports nifty, simple graphics and comforting music. Matt Yglesias sounds convinced himself.

Nothing he says convinces me. But I’ll concentrate just on the frank inflationism.

Yglesias mentions inflation. But it’s obvious he means CPI numbers, even though he offers the short-hand “too much money chasing a fixed amount of stuff” definition to stand in for the “supply of money increasing faster than the demand for money” definition that I hear from competent economists.

But while he admits that price inflation can be a problem, what he is promoting is inflationism. That’s the doctrine that central bank fiddling with increases in the rate of money growth is the way to control the economy. And that it’s costless.

Like money cranks of the old days, he only sees the costs of not inflating the credit system.

It never enters into his ideologically-driven thoughts that maybe artificially lowering interest rates fakes out investors and consumers, getting them to make bad investments that destabilize relative prices that, when they unravel, wreak havoc.

Inflationists are folks who are always trapped by the cure they prescribe. We’re left with boom-bust forever and ever.

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets too much government

Banning Consequences

When bad government policies create problems, government officials often pretend that the causes are unrelated to the effects. Instead they enact further bad policies. They may even seek to outlaw the effects, as if prohibiting puddles could stop the rain.

Suppose a government greatly expands the money supply, which leads to a general rise in prices obvious enough to cause people to complain about sticker shock. Governments may try to “solve” the problem with slogans and price controls.

In Argentina, which is lurching toward 30 percent inflation, they’re skipping the Whip Inflation Now buttons and going straight to the price controls. The government has temporarily frozen prices in the largest supermarkets. The two-month freeze is the result of an “agreement” between the trade group representing big stores and the Argentine government.

Now what happens?

Well, customers will race to the big stores, but small stores won’t lose business except in the short run. As the inflated demand outstrips a deflating stock of goods, the big stores and their suppliers won’t see much point in replacing goods that they can sell only unprofitably or at a loss. If they do replace the sold-off stock, they’ll likely do so with shoddier stuff in smaller packages.

Monetary inflation imposes hardship; price controls worsen the hardship. By the same logic, you help somebody whose leg you just broke by smashing his other leg too. You may think that this procedure would restore health, but actually—no.

This is Common Sense. I’m Paul Jacob.

Note on the illustration: The French assignat was an early instance of paper money inflation in Europe.

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education and schooling free trade & free markets too much government

Harvard Shrugs

Wait for it: There’s another financial bubble ready to pop.

I’m not an economist, so I could be as wrong as, uh, a Keynesian strung out on (and pushing) “economic stimulus.” But the usual signs of an over-priced market sure seem to apply to higher education, today. After all, colleges and universities are sustained and over-fed by massive debt . . . in this case, government-guaranteed student loans, now passing the trillion-dollar mark.Harvard Shrugs

From your local community college to the Ivy League, the whole industry reeks of insider advantages, constricted supply and inflated demand. So of course prices rise.

Beyond all reason.

The latest sign on the way to the bubble’s bursting comes from Harvard. That august institution’s Faculty Advisory Council for the Library issued a memorandum last week declaring that the cost of subscribing to peer-reviewed journals has become too great to bear. Robert T. Gonzaleaz, writing at io9, puts this news in perspective:

What does it say about the world of academic publishing, the accessibility of knowledge, and the flow of information when the richest academic institution on the planet cannot afford to continue paying for its peer-reviewed journal subscriptions?

When I look at the prices of textbooks and journals and academic books, I wince. Were this industry marked by laissez-faire policies and free markets, the typical leftist “anti-greed/anti-business” attitude might make sense. But this is an industry riddled with government intrusion, as far-reaching as the intrusions into housing and banking that led to 2008’s financial debacle.

How could the over-sold, over-subsidized, over-controlled college-university industry remain immune to a similar catastrophic deflation?

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets national politics & policies too much government

Ups and Downs

Inflationism is the ideology of increasing the money supply to spur economic activity and “growth.” In the 19th century, economists were generally against it, though certain “innovators” (cranks) thought that increasing the supply of money would “increase aggregate demand” with no bad repercussions. “Cross of gold” kind of nonsense; “free silver” idiocy.

In the 20th century, alas, inflationism went mainstream.

Today, a few respectable economists — high-profilers like the New York Times’s Paul Krugman and U.C. Berkeley’s Brad DeLong, for example — embrace inflationism. Occasionally their arguments sound sophisticated, but all are just warmed-over rehashes of very old errors.

It’s the economic equivalent of the “perpetual motion machine”: the eternal quest to get something for nothing, progress on the cheap. It inevitably fails — but only after fooling people by “working” for a while.

Reason’s Tim Cavanaugh, discussing declining housing prices, notes that “it’s becoming harder for the Fed, HUD, the Treasury Department and the National Association of Realtors to pretend the 25-year real estate inflation was anything but a $15 trillion rip-off.” He welcomes the deflation of housing prices. The idea that one’s house should increase in value by always increasing in price — that’s really just a recipe for social disaster. It endured as long as it did only “through government subsidized debt.”

Thank Congress; thank their Fannie and their Freddie; thank the inflationist Fed.

“Creating” money and loosening credit tends to nudge up prices . . . but not all prices equally. It signals people to over-invest in certain sectors, often real estate. This creates a sector boom . . . that then must “bust.”

The alternative? The honesty of sound money.

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets ideological culture too much government

Lies and Denials

Politics is often the art of lying about the effects of policy, and Hugo Chavez, Venezuela’s Prevaricator-in-Chief, is a master politician. As consumer-price inflation hits a 27 percent per annum rate, he blames capitalism.

One report summarizes his position: “Mr. Chavez said the market had become a perverse mechanism where the big monopolies, the big trans-nationals, and the bourgeoisie, dominate and ransack the people.”

So he’s extended price controls from staples to all sorts of goods, with some prices being immediately subjected to a rate freeze. Big firms will have to report costs to the government, so bureaucrats can determine a “fair price.”

Were it not a ratcheting up of oppression and hardship, I’d say this is all getting rather funny. Price controls notoriously fail to achieve what they aim. In the United States, Nixon-era wage and price controls set stagflation into overdrive. Long lines at the gas pumps, shortages in supermarkets, and rising prices. What a mess.

There’s good theory to explain why price floors and price ceilings cause major problems. But according to the head of the country’s price control board, “The law of supply and demand is a lie.”

Hugo and his cronies deny the relevance of the central bank’s doubling the volume of money in circulation since late 2007. Supply of money increases? No possible effect on skyrocketing prices, supply and demand being a lie, you see.

Meanwhile, people have begun to hoard products. It’s now almost impossible to even find coffee in Venezuelan stores.

This is Common Sense. I’m Paul Jacob.

Categories
national politics & policies too much government

Default by a Thousand Cuts

Alan Greenspan half-smilingly argues that U.S. Treasury bonds will never be defaulted because “we can always print money.” How reassuring.

It’s one thing to pull money out of the proverbial magic cookie jar and place it in bank ledgers (“high-powered money,” or QE1, QE2) while people are substituting consumption with saving, fearful of the near-term prospects (increasing their “demand for money”). It’s quite another to do that while people expect prices only to rise. Massive increase in the supply of money (“printing money”) while people anticipate inflation (lowered “demand for money”) can lead to runaway inflation, hyperinflation.

America hasn’t experienced that since the Civil War. But Germany has (after World War I), as has Zimbabwe (just recently). It can ruin a whole way of life.

After Germany’s hyperinflation, Nazism arose.

Greenspan may have been trying to make a subtle point, but the blunt point remains: Default is likely, for inflation itself serves as a form of default. Under Greenspan’s scenario, the Federal Reserve, conspiring with Treasury, would, by “simply” printing money, pay debt with decreased-value dollars.

The ancient Chinese had a perverse form of torturous execution: Death by a thousand cuts. Inflation is like that, it’s torture for almost everyone, default by a . . . gazillion devaluations.

The only way around this is to make very different cuts — in federal spending.

That’s not torture, that’s the road to recovery.

It’s unlikely, of course, because, to politicians and insiders, cutting spending seems like torture.

This is Common Sense. I’m Paul Jacob.