Inflation: The Bad Idea That Won’t Die


I think I’m going to have a stroke; the mainstream media actually printed something that makes sense!

If there was any consolation in the Sunday New York Times front-page article, “In Fed and Out, Many Now Think Inflation Helps,” it was that the “in Fed” names were few and far between. Yes, Federal Reserve Vice Chairman Janet Yellen, who was nominated to replace Ben Bernanke in January, is mentioned in connection with the idea that “a little inflation is particularly valuable when the economy is weak.” But that was it.

There is no guarantee that wages will keep pace with prices. The Times’s Binyamin Appelbaum says as much in a blog post yesterday, responding to what he says were “skeptical responses” from readers to his Sunday article.

Skepticism is warranted, especially when it comes to something that sounds so good on paper but is unlikely to work in practice.


How about this: It has NEVER worked before and won’t this time either.

How can I say that?  That’s simple.

See, inflation is simply the change in money supply.  And since in all modern monetary systems all money is in fact debt we can simply look at thetotal amount of debt in the system to determine the factual money supply — that is, what can change hands at any given point in time.

The Fed conveniently publishes this in the Z1 — here it is:

In 1980 there was $4,397 billion in debt in the entire economy — that is, there was $4.397 trillion of “moneyness” that could be spent on various things, should someone choose to do so.

Today there is $57,661 billion, or just over 13 times as much.

So how has income done?

Fortunately SSA provides us that answer across the entire population in the form of their average wage indexes (and they ought to know since they get the tax data for everyone who has a job.)  The average wage has moved from $12,513 in 1980 to $42,979.61 as of 2011, the last year for which data is available.  (BLS’s hourly data is only a subset of this for non-supervisory, production employees.)

Note that today’s average is 3.43 times higher than 1980 while the money supply has gone up by a factor of 13.

Put another way the average American has had almost three quarters of his or her earnings power in monetary terms destroyed in the last 33 years.

This should have long ago prompted an upheaval in our nation and a complete ejection of those in power, both at The Fed and in our Government.  It is for this reason and no other that we have seen a gross and outrageous ramp in dependence on welfare, food stamps, disability and other forms of “handouts.”

Yes, you really are, if you’re an average American, getting poorer and it is not only not an accident people like Paul Krugman and a bunch of others on both the left and right would like to see you get even more poor and, it appears, ultimately and literally starve to death.

Why have you, Americans, allowed your government and these so-called “elite experts” to advocate and put in place policies that have literally destroyed 3/4 of the purchasing power that your labor is supposed to secure for you — a program they are continuing and many, including Krugman, advocate accelerating!

Ps: It’s a clean (and colorable) argument that population growth should also be counted.  If we do then population has gone from 226 million (1980) to ~316 million. Ratably reducing the debt by that gives you an increase of 9.38x, while your wages still went up (per-capita) by 3.43x.  This provides a depreciation of purchasing power of about 63% — not much better.

Go to responses (registration required to post)