Despite Joe Biden’s best efforts, and those of his White House communications department which is outsourced to CNN, the strategy to make Vladimir Putin public enemy No. 1 by blaming him for inflation has failed. . The American people don’t buy it. They only buy half of it. They buy the inflation part, but they don’t buy the part caused by Putin. They blame Putin for invading Ukraine, but they blame Joe for paying more for everything.
I thought I heard a lady in front of me at the grocery store say, “I remember when there was only a dollar to help feed the hungry. Now it’s $5. It’s obviously inflation. I smiled at him and said, “I remember when it was only a penny for your thoughts. Now it’s 5 cents.
Let me do my impression of Joe Biden: “Listen folks, this is no joke, inflation isn’t the only reason prices are going up. And the rise in prices is not only caused by inflation. Prices are rising due to a variety of causes, and inflation has little to do with why prices are rising at the rate they are rising today.
But before continuing, let me state the obvious. We have inflation. To understand this, just check the price of gold and watch its evolution against the value of the dollar. If you really want to earn extra credit, follow the price of gold against the value of the dollar and the world price of oil, and you will understand how the value of the dollar is related to both gold and oil .
When the dollar is strong, or in other words, when the dollar is weak, the higher the price of gold, the higher the price of oil. When the value of the dollar goes down, gold goes up, and so does oil. These two measures are all the evidence you need to know that we are experiencing inflationary monetary policy in America. But as a picture is worth a thousand words, see for yourself. Today, gold against the dollar is falling as the Treasury tries desperately to support the dollar.
Inflation is real, but it’s not when Netflix raises the price of your service. Inflation is real, but it’s not the real reason for the rise in the price of bacon. Inflation is the devaluation of currency. What we experienced in the 1970s, when Nixon took the country off the “gold standard” by abandoning the Bretton Woods agreements, when the dollar became essentially a fiat currency, its value no longer fixed at an ounce of gold, or any other fixed store of value. It was inflation. The dollar was allowed to float against other foreign currencies, and so commodities began to appreciate against the dollar, including oil, but also and especially gold. It was inflation. The same is true now. But again, see for yourself.
And because higher oil prices beget higher gas prices, that’s really at the heart of the problem that Americans face in their daily lives. Higher fuel costs lead to higher costs throughout the economy, which leads to an overall rise in the general price level, as measured by the consumer price index (CPI).
Although it must be said that the CPI is a notoriously unreliable measure of price growth across the economy.
To be clear, I don’t blame inflation for the higher prices of most consumer goods we buy. I put that down to higher transportation costs, although that’s only a part, and as I’ll get to in a minute, a relatively small part. The higher transportation costs today compared to 18 months ago are undoubtedly the result of higher fuel costs, and of course the higher fuel costs today are due to the recent surge in the world price of oil. But this is not a new phenomenon. World oil prices have risen since President Clinton left the White House. See the table of inflation-adjusted oil prices. Notice that only Reagan and Clinton benefited from low world oil prices. They also had strong dollars.
As John Tamny, the editor of RealClearPolitics and the only economist I know who writes about it, likes to say, blaming inflation for the rise in the general price level is the monetary policy equivalent of a meteorologist blaming wet sidewalks for rain.
Wet sidewalks don’t cause more rain than inflation drives up prices at your local grocery store. The devaluation of our currency is the reason why the things we buy today – like a house, a car, clothes, bread, milk – are more expensive today than they were there is 30 years old.
However, inflation is not the reason these things are more expensive than they were a month, a year or 18 months ago. The reason prices are higher for so many of the items we buy today is because in March 2020 politicians panicked, to borrow another of Tamny’s words. Tamny wrote a book called When politicians panic. And he writes about – and at the time I was also talking about this – that politicians, including at the local level, only listened to public health bureaucrats instead of economists and made the spectacularly stupid decision to shut down the economy.
You cannot shut down an economy that relies on the invisible hand of the market that involves billions of individuals making billions of decisions every minute of every hour of every day over millions of miles simultaneously across hundreds of industries and sectors . And then a year later turn it back on like it’s a switch and expect it to return to its same level of flawless efficiency and expect it to produce at the same level of efficiency and with the same low prices. It is incredibly naïve to even contemplate such a remarkably ignorant belief or assumption. Especially people who are normally conservative and have opinions predisposed to be skeptical of the decisions of politicians and bureaucrats.
So just to be clear, yes Virginia, prices are higher than they should be due to the constant devaluation of the dollar over a very long period of time. But it started more than 50 years ago. Not when Biden was elected.