Despite What the Experts Told You, This Was Never ‘Inflation’

“Dell has too many computers, Nike is swimming in summer clothes. And Gap is flooded with basics like t-shirts and shorts.” So wrote Washington Post reporter Abha Bhattarai last week. Bhattarai perhaps didn’t know it, but he was revealing something to readers bigger than the headline of the article that read “Overstocked retailers make deep price cuts.”

That there are “deep price cuts” at a time of rising prices is really a statement of the obvious. A rising price by definition signals a falling price elsewhere. To see why, imagine $100 sitting in your pocket. If you’re suddenly paying $50 for the same groceries that used to cost $35, you logically have fewer dollars for other goods and services.

In the past year or so, the news has been the “inflation” that was allegedly caused by rising prices. Such reasoning reverses causation. To say that rising prices cause inflation is the same as saying collapsed houses and buildings cause hurricanes. Actually, what’s destroyed is an effect of the hurricane, not the instigator. Inflation is no different.

Inflation is a decline in the monetary unit of measure. Rising prices can be an effect of inflation, but they’re certainly not the cause of same. To presume otherwise is tantamount to pointing to wet sidewalks as the cause of rain.

Some reading this will reply that CPI and other price measures are up, thus inflation, but CPI is once again prices of goods. The basket used right now signals higher prices, but restock the basket with Dell computers, broadband access, Nike summer apparel, and Gap t-shirts and you have a different reading. Which is why “prices” are paradoxically such a lousy way of divining inflation.

That’s the case because prices can move for all sorts of reasons. Imagine if tangerines are suddenly discovered as a surefire way of curing the common cold. If so, demand for the fruit would almost surely exceed supply on the way to soaring prices of tangerines. Conversely, imagine if plant-based meat is revealed to cause jaundice. One guesses demand for same will decline, in concert with falling prices.

Or, just think about production overall. Businesses and entrepreneurs are endlessly in the market for capital in order to mass produce former luxuries. Henry Ford rather famously turned the automobile from an impossible-to-get luxury into a common good via assembly-line production advances. What was once costly was increasingly inexpensive. Deflation? Not at all. See above. Just as a rising price for one good implies a falling price elsewhere, so does a falling price for one market good imply rising prices for other goods.

The simple truth is that prices on their own are how a market economy organizes itself, and they rise and fall for all sorts of reasons that have nothing to do with inflation. Inflation is once again a decline in the monetary unit of measure.

Taking all of this into the present, this column has made a case from Day One that the “inflation” of the moment is not inflation. This is no revelation, or shouldn’t be. Inflation is yet again a decline in the monetary unit, but over the last two years the dollar has risen against the major foreign currencies, plus it’s risen against gold; the most objective measure of all. Gold generally doesn’t move in value as much as the currencies in which it’s priced move in value. The dollar price of gold has fallen in the past two years, which should have neo-inflationists wondering. Indeed, their contention is that we have a major inflation problem as the dollar is rising. Sorry, but that’s not inflation.

What we have right now is rising and sometimes nosebleed prices for certain goods. That we do should be a statement of the obvious. To see why, consider Henry Ford’s genius yet again. He was miraculously able to make automobiles affordable by dividing up their production among hundreds and thousands of specialized workers.

Please think of this with the last two years top of mind. As I point out in my new book The Money Confusion, every market good in the world is the result of remarkably sophisticated global cooperation among workers and machines. Yet this sophisticated global symmetry was eviscerated to varying degrees by lockdowns in 2020 and beyond. Economic activity divided up by billions of workers around the world was suddenly halted altogether, or limited in various ways. Workers once free to work, and businesses once free to operate, suddenly were not. That prices are higher in the aftermath of this hideous imposition of command-and-control is more than tautological.

What’s important is that higher prices born of force are hardly inflation, plus as we know from Bhattarai, the higher prices have logically reduced demand elsewhere. Bhattarai reports that there’s presently a record of $732 billion in unsold inventory among U.S. companies. Yes, it makes sense. We can’t have everything.

In short, this is not inflation. Don’t let it be called what it isn’t. To errantly refer to rising prices as inflation is to let politicians off the hook for their monumental errors in 2020 and beyond. Don’t let them off of the hook. “Dell has too many computers, Nike is swimming in summer clothes. And Gap is flooded with basics like t-shirts and shorts.” So wrote Washington Post reporter Abha Bhattarai last week. Bhattarai perhaps didn’t know it, but he was revealing something to readers bigger than the headline of the article that read “Overstocked retailers make deep price cuts.”

That there are “deep price cuts” at a time of rising prices is really a statement of the obvious. A rising price by definition signals a falling price elsewhere. To see why, imagine $100 sitting in your pocket. If you’re suddenly paying $50 for the same groceries that used to cost $35, you logically have fewer dollars for other goods and services.

In the past year or so, the news has been the “inflation” that was allegedly caused by rising prices. Such reasoning reverses causation. To say that rising prices cause inflation is the same as saying collapsed houses and buildings cause hurricanes. Actually, what’s destroyed is an effect of the hurricane, not the instigator. Inflation is no different.

Inflation is a decline in the monetary unit of measure. Rising prices can be an effect of inflation, but they’re certainly not the cause of same. To presume otherwise is tantamount to pointing to wet sidewalks as the cause of rain.

Some reading this will reply that CPI and other price measures are up, thus inflation, but CPI is once again prices of goods. The basket used right now signals higher prices, but restock the basket with Dell computers, broadband access, Nike summer apparel, and Gap t-shirts and you have a different reading. Which is why “prices” are paradoxically such a lousy way of divining inflation.

That’s the case because prices can move for all sorts of reasons. Imagine if tangerines are suddenly discovered as a surefire way of curing the common cold. If so, demand for the fruit would almost surely exceed supply on the way to soaring prices of tangerines. Conversely, imagine if plant-based meat is revealed to cause jaundice. One guesses demand for same will decline, in concert with falling prices.

Or, just think about production overall. Businesses and entrepreneurs are endlessly in the market for capital in order to mass produce former luxuries. Henry Ford rather famously turned the automobile from an impossible-to-get luxury into a common good via assembly-line production advances. What was once costly was increasingly inexpensive. Deflation? Not at all. See above. Just as a rising price for one good implies a falling price elsewhere, so does a falling price for one market good imply rising prices for other goods.

The simple truth is that prices on their own are how a market economy organizes itself, and they rise and fall for all sorts of reasons that have nothing to do with inflation. Inflation is once again a decline in the monetary unit of measure.

Taking all of this into the present, this column has made a case from Day One that the “inflation” of the moment is not inflation. This is no revelation, or shouldn’t be. Inflation is yet again a decline in the monetary unit, but over the last two years the dollar has risen against the major foreign currencies, plus it’s risen against gold; the most objective measure of all. Gold generally doesn’t move in value as much as the currencies in which it’s priced move in value. The dollar price of gold has fallen in the past two years, which should have neo-inflationists wondering. Indeed, their contention is that we have a major inflation problem as the dollar is rising. Sorry, but that’s not inflation.

What we have right now is rising and sometimes nosebleed prices for certain goods. That we do should be a statement of the obvious. To see why, consider Henry Ford’s genius yet again. He was miraculously able to make automobiles affordable by dividing up their production among hundreds and thousands of specialized workers.

Please think of this with the last two years top of mind. As I point out in my new book The Money Confusion, every market good in the world is the result of remarkably sophisticated global cooperation among workers and machines. Yet this sophisticated global symmetry was eviscerated to varying degrees by lockdowns in 2020 and beyond. Economic activity divided up by billions of workers around the world was suddenly halted altogether, or limited in various ways. Workers once free to work, and businesses once free to operate, suddenly were not. That prices are higher in the aftermath of this hideous imposition of command-and-control is more than tautological.

What’s important is that higher prices born of force are hardly inflation, plus as we know from Bhattarai, the higher prices have logically reduced demand elsewhere. Bhattarai reports that there’s presently a record of $732 billion in unsold inventory among U.S. companies. Yes, it makes sense. We can’t have everything.

In short, this is not inflation. Don’t let it be called what it isn’t. To errantly refer to rising prices as inflation is to let politicians off the hook for their monumental errors in 2020 and beyond. Don’t let them off of the hook.