Monday, October 28, 2013
It isn't just those who are ignorant of history who are doomed to repeat it.
Those who ignore it or misinterpret it badly enough can, too. The New York
Times reports that inflation
is once again all the rage among central planners. Notice that current crop of officials appear to
be combining the aforementioned biases by cherry-picking:
Lately, however, the 1970s have seemed a less relevant cautionary tale than the fate of Japan, where prices have been in general decline since the late 1990s. Kariya, a popular instant dinner of curry in a pouch that cost 120 yen in 2000, can now be found for 68 yen, according to the blog Yen for Living.Fortunately, for anyone interested in helping voters get up to speed on the truth, we have Ayn Rand and Thomas Sowell.
This enduring deflation, which policy makers are now trying to end, kept the economy in retreat as people hesitated to make purchases, because prices were falling, or to borrow money, because the cost of repayment was rising. [links in original]
Ayn Rand did a nice job of making inflation intelligible to an ordinary person decades ago through a thought experiment, which I quote here in part:
[P]roject what would happen to your community of a hundred hard-working, prosperous, forward-moving people, if one man were allowed to trade on your market, not by means of gold, but by means of paper--i.e., if he paid you, not with a material commodity, not with goods he had actually produced, but merely with a promissory note on his future production. This man takes your goods, but does not use them to support his own production; he does not produce at all--he merely consumes the goods. Then, he pays you higher prices for more goods--again in promissory notes--assuring you that he is your best customer, who expands your market.But the above is almost made to look superflous in the face of historical evidence analyzed with the goal of understanding what can cause a nation to prosper (vice what can make printing money look like a good idea), as Thomas Sowell demonstrates:
Then, one day, a struggling young farmer, who suffered from a bad flood, wants to buy some grain from you, but your price has risen and you haven't much grain to spare, so he goes bankrupt. Then, the dairy farmer, to whom he owed money, raises the price of milk to make up for the loss--and the truck farmer, who needs the milk, gives up buying the eggs he had always bought--and the poultry farmer kills some of his chickens, which he can't afford to feed--and the alfalfa grower, who can't afford the higher price of eggs, sells some of his stock seed and cuts down on his planting--and the dairy farmer can't afford the higher price of alfalfa, so he cancels his order to the blacksmith--and you want to buy the new plow you had been saving for, but the blacksmith has gone bankrupt. Then all of you present the promissory notes to your "best customer," and you discover that they were promissory notes not on his future production, but on yours--only you have nothing left to produce with. Your land is there, your structures are there, but there is no food to sustain you through the coming winter, and no stock seed to plant. ["Egalitarianism and Inflation", in The Ayn Rand Letter, no. III, vol. 19, pp. 338-339]
[Federal Reserve Chairman nominee Janet Yellen's] first question, whether free market economies can achieve full employment without government intervention, is a purely factual question that can be answered from history. For the first 150 years of the United States, there was no policy of federal intervention when the economy turned down.And, much later:
Under Calvin Coolidge, the ultimate in non-interventionist government, the annual unemployment rate got down to 1.8 percent. How does the track record of Keynesian intervention compare to that?Earlier, Sowell reminds us of a term we might soon need to take from the shelf and dust off: "stagflation". (Astoundingly, even the Times brings it up -- before trying to help us forget it.) So long as Obama is in power and voters don't mind this kind of thinking too much, we are at the very least in danger of this problem recurring. Fortunately, we can work to show that he and his big government cronies are wrong by spreading the word.