Despite what the experts told you, this was never “inflation”

“Dell has too many computers, Nike is swimming in summer clothes. And Gap is invaded by basic items such as t-shirts and shorts ”. So she wrote Washington Post reporter Abha Bhattarai last week. Bhattarai may not have known this, but he was revealing to readers something bigger than the headline of the article which said “Overcrowded Retailers Make Deep Price Cuts.”

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

In the last year or so, the news has been the “inflation” that would be caused by rising prices. This reasoning reverses causality. To say that rising prices causes inflation is the same as saying that collapsed houses and buildings cause hurricanes. In reality, what is 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 may be an effect of inflation, but they are certainly not the cause. Assuming otherwise is tantamount to pointing to wet pavements as the cause of rain.

Some readings will answer that CPI and other price measures have risen, hence inflation, but CPI is commodity prices once again. The basket being used right now reports higher prices, but stock the basket with Dell computers, broadband access, Nike summer clothing and Gap t-shirts and you have a different read. This is why “prices” are paradoxically such a lousy way of guessing inflation.

This is the case because prices can vary for all kinds of reasons. Imagine if tangerines were suddenly discovered as a surefire way to cure the common cold. If so, the demand for the fruit would almost certainly exceed supply on the way to soaring mandarin prices. On the contrary, imagine if meat of plant origin is found to cause jaundice. Demand is expected to decline, in tandem with falling prices.

Or, just think about production in general. Businesses and entrepreneurs are continually looking for capital to mass-produce former luxuries. Henry Ford is known to have transformed the automobile from an impossible luxury into a common good through advances in assembly line production. What was once expensive was always cheaper. Deflation? At all. See above. Just as a rising price for one good implies a falling price elsewhere, so a falling price for a market good implies rising prices for other goods.

The simple truth is that prices alone are the way a market economy is organized, and they go up and down 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 this in the present, this column has argued from day one that the “inflation” of the moment is not inflation. This is not a revelation, or it shouldn’t be. Inflation is once again a decline in the monetary unit, but in the last two years the dollar has risen against the main foreign currencies, more than gold; the most objective measure of all. Gold generally does not move in value as much as the currencies in which it is priced move in value. The dollar price of gold has fallen over the past two years, which should make neo-inflationists think. Indeed, their contention is that we have a major inflation problem as the dollar is rising. Sorry, but it’s not inflation.

What we have right now is the rise and sometimes the bleeding of prices for certain goods. What we do should be a statement of the obvious. To understand why, consider Henry Ford’s genius once again. He miraculously managed to make automobiles accessible by dividing their production between hundreds and thousands of skilled workers.

Please think about it with the mind of the last two years. As I point out in my new book The confusion of money, every market commodity in the world is the result of extraordinarily sophisticated global cooperation between workers and machines. Yet this sophisticated global symmetry has been gutted at various levels by the blocks in 2020 and beyond. Economic activity divided by billions of workers around the world was suddenly stopped altogether or limited in various ways. Workers once free to work and companies once free to operate suddenly weren’t. That prices are higher in the aftermath of this horrifying imposition of command and control is more than tautological.

The important thing is that the higher prices generated by the force are certainly not inflation, moreover, as we know from Bhattarai, the higher prices have logically reduced demand elsewhere. Bhattarai reports that there is currently a record $ 732 billion in unsold inventory among US companies. Yes, it makes sense. We can’t have it all.

In short, this is not inflation. Don’t let it call itself what it isn’t. Misrepresenting rising prices as inflation means freeing politicians from their monumental mistakes in 2020 and beyond. Don’t let them off the hook. “Dell has too many computers, Nike is swimming in summer clothes. And Gap is invaded by basic items such as t-shirts and shorts ”. So she wrote Washington Post reporter Abha Bhattarai last week. Bhattarai may not have known this, but he was revealing to readers something bigger than the headline of the article which said “Overcrowded Retailers Make Deep Price Cuts.”

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

In the last year or so, the news has been the “inflation” that would be caused by rising prices. This reasoning reverses causality. To say that rising prices causes inflation is the same as saying that collapsed houses and buildings cause hurricanes. In reality, what is 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 may be an effect of inflation, but they are certainly not the cause. Assuming otherwise is tantamount to pointing to wet pavements as the cause of rain.

Some readings will answer that CPI and other price measures have risen, hence inflation, but CPI is commodity prices once again. The basket being used right now reports higher prices, but stock the basket with Dell computers, broadband access, Nike summer clothing and Gap t-shirts and you have a different read. This is why “prices” are paradoxically such a lousy way of guessing inflation.

This is the case because prices can vary for all kinds of reasons. Imagine if tangerines were suddenly discovered as a surefire way to cure the common cold. If so, the demand for the fruit would almost certainly exceed supply on the way to soaring mandarin prices. On the contrary, imagine if meat of plant origin is found to cause jaundice. Demand is expected to decline, in tandem with falling prices.

Or, just think about production in general. Businesses and entrepreneurs are continually looking for capital to mass-produce former luxuries. Henry Ford is known to have transformed the automobile from an impossible luxury into a common good through advances in assembly line production. What was once expensive was always cheaper. Deflation? At all. See above. Just as a rising price for one good implies a falling price elsewhere, so a falling price for a market good implies rising prices for other goods.

The simple truth is that prices alone are the way a market economy is organized, and they go up and down 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 this in the present, this column has argued from day one that the “inflation” of the moment is not inflation. This is not a revelation, or it shouldn’t be. Inflation is once again a decline in the monetary unit, but in the last two years the dollar has risen against the main foreign currencies, more than gold; the most objective measure of all. Gold generally does not move in value as much as the currencies in which it is priced move in value. The dollar price of gold has fallen over the past two years, which should make neo-inflationists think. Indeed, their contention is that we have a major inflation problem as the dollar is rising. Sorry, but it’s not inflation.

What we have right now is the rise and sometimes the bleeding of prices for certain goods. What we do should be a statement of the obvious. To understand why, consider Henry Ford’s genius once again. He miraculously managed to make automobiles accessible by dividing their production between hundreds and thousands of skilled workers.

Please think about it with the mind of the last two years. As I point out in my new book The confusion of money, every market commodity in the world is the result of extraordinarily sophisticated global cooperation between workers and machines. Yet this sophisticated global symmetry has been gutted at various levels by the blocks in 2020 and beyond. Economic activity divided by billions of workers around the world was suddenly stopped altogether or limited in various ways. Workers once free to work and companies once free to operate suddenly weren’t. That prices are higher in the aftermath of this horrifying imposition of command and control is more than tautological.

The important thing is that the higher prices generated by the force are certainly not inflation, moreover, as we know from Bhattarai, the higher prices have logically reduced demand elsewhere. Bhattarai reports that there is currently a record $ 732 billion in unsold inventory among US companies. Yes, it makes sense. We can’t have it all.

In short, this is not inflation. Don’t let it be called what it isn’t. Misrepresenting rising prices as inflation means freeing politicians from their monumental mistakes in 2020 and beyond. Don’t let them off the hook.

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