Tag: inflation

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.

Categories
national politics & policies

QE Q&A

It’s one of those terms seemingly designed to conceal something ugly, dangerous, or unnerving; this example of contemporary policy jargon just looks like a euphemism. It’s “quantitative easing” (QE) and it’s Federal Reserve policy.

What does the “quantitative” part refer to?

The quantity of money in bank reserves.

Is this all about increasing that quantity?

Yes.

Isn’t that synonymous with inflation?

According to the old definition — where inflation is the increase in the supply of money — yes. But since economists became obsessed with the price level, and “correcting” the price level, today inflation usually designates a general rise in prices. Of course, more money will tend to raise prices. But because demand for money can offset supply moves, price levels are not affected on a simple input-output, one-to-one manner.

Is this what we call “printing money”?

Yes, but in the digital ledgers of banks, not in terms of paper dollars.

So this “easing” is just “easy money”?

Yes, but not “just.” Because the new money hits bank reserves, it eases banks’ pressure vis-a-vis risk. So banks can lend more.

Will banks, helped out by QE, actually follow through and make loans?

Big question. They didn’t, much, after the bailouts. Banks loan funds only when they can expect a return. Monetary manipulation doesn’t, presto chango, solve the problem of the future. If the future looks especially unstable, or uncertain, no loan.

Will this necessarily jump-start the economy?

No. Our elite experts’ desperation is showing.

This is Common Sense. I’m Paul Jacob.

Categories
national politics & policies responsibility too much government

Freeze Federal Salaries

Procrastination feeds deficits. Deficits feed debt. Debt feeds catastrophe.

Politicians avoid balancing budgets by saying they will do so not this year, but “sometime in the future.” Hence our looming debt crisis. This debt either must be paid, defaulted, or . . . “monetized.”

That last term is code for inflation.

Why not bring the need for cuts and inflation together? After all, the Federal Reserve still exists, so some inflation is inevitable. Inflation is what central banks like the Fed do.

So, barring a complete monetary reform, simply freeze all federal salaries, at least until the average level of compensation for federal jobs matches the average level of compensation for comparable private-sector jobs.

Currently, as James Sherk of the Heritage Foundation has uncovered, federal workers earn 22 percent more than private sector workers . . . and that’s just in terms of nominal pay. If our politicians turned heroic and cut these down to where they should be, immediately, we’d save $47 billion in taxpayer funds per year.

But it gets worse, as Chris Prandoni writes: “The average federal civilian employee earns on average $32,115 a year in non-cash compensation compared to a private sector employee who earns three times less, $9,882 annually.”

So freeze benefits, too. Defrost only when they match private sector levels.

Politicians could start the freeze right now, just to show a smidgen of discipline. More likely? They’ll go with what they know: Procrastination.

Responsibility? Wait for another freeze. Of hell’s shiny surface.

This is Common Sense. I’m Paul Jacob.