The Five Stages of Counterfeiting

Why not zero inflation?

Why not price deflation? “What’s good for computer buyers is good for buyers of everything else!” Right?

That is not what Bernanke thinks. If he did, he would say so.

That is also not what any Ph.D.-holding economist quoted by the media or published in academic journals believes. I have heard only one academic economist come out publicly in favor of price deflation: Murray Rothbard. He favored a monetary standard selected by the public voluntarily in a world in which the fraud of fractional reserve banking is illegal. He believed that increasing productivity under capitalism in a 100% reserve ratio legal system would lead to slowly falling prices.

On this issue, Rothbard stood alone in the twentieth century.

So, the public wants low price inflation. Anyway, that is what the FED intends to provide. So, the FED’s policy-makers require reams of statistics, collected by government fiat. They also require computer models. And they require an undefined and therefore uncertain artistry to work consistently, contrary to uncertainty.

Bernanke politely said that pre-1980 Keynesian policies of inflation to combat unemployment are dead. This is surely good news – for now.

Still, I think we can agree that, at a minimum, the opposite proposition – that inflationary policies promote employment growth in the long run – has been entirely discredited and, indeed, that policies based on this proposition have led to very bad outcomes whenever they have been applied.

But we still have price inflation. We have had price inflation every year, except 1955, since 1938. Why? Because the FED keeps inflating the monetary base, and the commercial banks keep responding by inflating the money supply. Why does the FED do this? To keep the economy from falling into recession.

So, contrary to Dr. Bernanke, I think we can agree that, at a minimum, the opposite proposition – that inflationary policies promote employment growth in the long run – has been entirely accepted by the academic economics guild, despite the fact that policies based on this proposition have led to very bad outcomes whenever they have been applied. It has surely been the operating presumption of Federal Reserve policy-makers since 1933.

As you know, the control of inflation is central to good monetary policy. Price stability, which is one leg of the Federal Reserve’s dual mandate from the Congress, is a good thing in itself, for reasons that economists understand much better today than they did a few decades ago.

What I know is that price stability has been the fairy-tale dream of Federal Reserve chairman ever since 1938, which they promise to Congress, four times a year. They have been singing a variant of Snow White’s love song ever since its release in 1937: ”Some day, price stability will come.” And Congress, doing its now-legendary imitation of Dopey, smiles contentedly.