The True Inflation ‘Crisis’ Is a Redefinition of the Word ‘Inflation’

The Washington Post’s Catherine Rampell should in a sense be cheered for her willingness acknowledge an inflation that’s said to be happening on the watch of President Biden. There’s not enough inward focus at the moment, and Rampell brings more of it when her critical eye extends to the White House. Of course, the problem with Rampell’s self-flagellation (no one would mistake her for a Republican) is that in criticizing Democrats for inflation, she’s redefining it altogether; that, or discovering it where it couldn’t possibly exist.

For instance, Rampell is not a fan of “’Inflation relief’ check proposals” that have been “proposed or adopted in California, Indiana, Delaware” and other states. She believes they’ll be “harmful in the fight against inflation. That’s because these and other tax cuts or rebates will make red hot demand even hotter.” Except that what Rampell writes isn’t true. Not remotely so. And this isn’t a defense of the spending.

What Rampell’s analysis implies is that government can mobilize otherwise dormant capital; that with its taxing power it can increase demand. It can do no such thing. Short of us stuffing the money we earn into the proverbial coffee can, what we don’t spend is automatically shifted to others with near-term wants and needs. Banks and other financial intermediaries don’t take in our money in order to stare at it lovingly, rather they pay us a small rate of interest for our unspent wealth precisely because they intend to lend it out at a higher rate of interest.

In Rampell’s case she’s not against wealth redistribution as much as she’s against it now because she thinks the checks will cause prices to rise. That’s the equivalent of the columnist saying that a quick, but perhaps immoral way to render demand “red hot” when it otherwise isn’t is to legalize theft in the near term. Imagine all the spending if police look the other way when the innocent are being robbed. Except that there would be no increase. Every dollar of spending by thieves would be a dollar those thieved would no longer have. To be clear, this previous comment isn’t the start of a discussion about taxation. It’s instead a way of saying that whatever the good or bad of government handouts, they don’t increase demand. For government to send out checks in the billions, others must have billions less.

If not, as in if governments could just hand out money without harming those taken from, then it’s safe to say that they would do so with great regularity. They could also theoretically erase all periods of slower economic growth. No, such a view isn’t serious. Governments only have wealth to redistribute after it’s been produced. Put another way, in presuming an increase in “demand,” Rampell is double counting. Worse, she’s presuming yet again that governments possess the magical power to produce “demand.” No, they don’t.

She goes on to write that the “best, least painful way” to shrink what she imagines inflation to be would be for the powers-that-be to “fix this mis-match between demand and supply” by dramatically increasing supply. Except that there can’t be a broad “mis-match between demand and supply” simply because demand is the logical consequence of supply. No economic school can get around this simple truth. If there’s less supply today, there’s logically less demand. Rampell believes they’re distinct concepts, which again has her mind wandering.

She then pivots to the Federal Reserve that all-too-many on Left and Right ascribe magical powers to. Rampell writes that “By raising interest rates, the central bank is making borrowing more expensive, which in turn cools spending….” Again, demand. And this odd focus on the Fed as some kind of “other” in control of the cost and availability of credit. In truth, we borrow money for what it can be exchanged for. It’s a reminder that credit is produced globally such that the Fed controls neither its cost nor its supply. Goodness, a recent story in the Wall Street Journal indicated that $150 billion of Russian wealth alone sits in Zug, a prominent locale for Russian oligarch types in Switzerland. Do Rampell and others so taken by the Fed’s alleged powers think that money is just warehoused in Zug, and countless other global havens for the parking of capital? More realistically, abundant wealth created globally and that’s denominated in dollars is circulating globally in search of some kind of higher use. Much of it reaches the United States for reasons too numerous to count. It’s a long or short way of saying that what Rampell imagines the Fed to be taking away is made up for in seconds by myriad domestic and international sources of capital.

What’s notable about all this is that Rampell claims that “There’s not a ton that most politicians can do to push inflation down.” Here she reveals her obstinacy? Indeed, while she believes politicians and central bankers can do what they can’t (increase demand, increase supply, shrink credit), she ignores what they can do: stabilize the value of the currency that is a creation of the government for which they toil. Currencies are a measure. Nothing more. For centuries responsible governments issued currencies that held their value.

Rampell is perhaps revealing her obstinacy about inflation given her seeming unwillingness to understand what it is. Inflation is a devaluation of the currency, and always has been. Of course, based on that, it’s worth noting that during Joe Biden’s not-so-great presidency, the dollar has risen against major foreign currencies and gold. Which means this would be the first inflation in the history of the world without a currency devaluation. It makes you wonder if Rampell is shunning partisanship at a time when she needn’t.