Carnal Reason

An interesting article from the Ludwig von Mises Institute:

…So when you hear that [Fed Chairman] Bernanke favors “low inflation,” remember that the emphasis is on the noun and not its modifier. It means that he prefers any amount of inflation to a condition of deflation.

Why the hysteria against deflation? We are faced with a real puzzle here. In the whole of the private sector, the number one focus of retailers these days, particularly those dominant retailers such as Wal-Mart and Home Depot, is low prices. This they emphasize above all else because they know that this is what consumers want.

And yet in the public sector, we find exactly the opposite: an ironclad promise that prices will not be low but rather will be continually rising. So if Wal-Mart’s slogan is “Always Low Prices,” the slogan of the Fed and the government should be “Always Higher Prices.”

….

The reason the government — and here I speak of Congress and the presidency — favors a loose monetary policy, a discretionary rule at the Fed, and ongoing low-grade inflation is the most obvious one of all. It pays the bills. In other words, the reason is no different from that of private counterfeiting. They like to have money without having to work to get it. That is essentially what the Federal Reserve provides the government. It doesn’t have to worry about its bond rating collapsing or its credit standing falling. It doesn’t have to bother with taxing people. It can hide the costs of government in the complications associated with monetary affairs.

Some of my readers are closet socialists with a touching faith in the power of government in all matters except the defense of the nation. They may appreciate this:

It has been war that has been the driving force in monetary depreciation throughout history. If Bush had been forced to raise the hundreds of billions that he has spent on his Iraq caper through taxation, his supporters would be far less supportive, and his policy more honest. Instead, he has been able to count on the inflationary finance of his friends at the Fed to make it all possible. Monetary policy has been the handmaiden of empire in other ways too, as the dollar is used as political leverage against nearly every country in the world from Argentina to China to Russia.

Posted on November 24th, 2005 by pwyll
Filed under: General