The claim that monetary policy has nothing to do with inflation is nothing knew. The Conference Board said the same thing in 1957, and here is Henry Hazlitt’s response — from his great book — to the notion that it is not money expansion but costs of business that are pushing prices. FULL ARTICLE by Henry Hazlitt
Source link: http://archive.mises.org/14923/cost-push-inflation/
Cost-Push Inflation?
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“Our politicians put irresponsible and irresistible power in the hands of union leaders, and then plead with them not to use it. They remove the natural economic penalties for recklessness, and then beg for restraint.”
The same is true today, except that it’s much worse — since the unions are public unions, there’s very little push back from the payers (that would be us, the taxpayers), who are represented by the very same government bureaucrats who stand to benefit from caving in to union demands for ever greater compensation and benefits packages.
Also, note how easy it is to substitute “Wall Street”, “Big Business”, “the insurance industry”, “the education establishment”, “the trial bar”, or any other government-subsidized special interest into the sentence in place of “union leaders”, with little if any change to the sentence.
As Lord Acton famously said, “Power tends to corrupt. Absolute power corrupts absolutely.”
This is clearly not taking into account public sector unions. They can increase tax burdens (cost to taxpayers) by demanding more benefits and higher wages.
The BLS shows that there are 7.9 million unionized public sector employees, which exceeds the 7.4 million union workers in the private sector.
Cost-push inflation (they mean prices) is certainly much more relevant today than in 1957.
If the money supply in circulation is fixed, a rise in prices in area X will necessarily lead to a fall in prices elsewhere. Hazlitt is referring to “general price inflation”, not relatively price fluctuations.
Macro nonsense!
“If the money supply in circulation is fixed, a rise in prices in area X will necessarily lead to a fall in prices elsewhere.”
And so the supply of goods apparently has nothing to do with prices? If someone blows up an oil pipeline in Nigeria, that will make oil prices rise. What prices necessarily fall?
Yes, a net fall in supply will cause a rise in prices, but in a dynamic economy a net fall in supply is unlikely to occur (petroleum is not the only economic good being produced).
Your simple little math equation didn’t hold up. Natural and man-made destruction and disasters are pretty common at both large and small scales. Anyhow, your statement was not about likelihood.
http://www.youtube.com/watch?v=bXBuWUQ24vUIdiot!
Idiotic!
What math equation? Natural disasters have never been able to cause a net decrease in the quantity of economic goods. Otherwise, there would have never been economic progress.
“Natural disasters have never been able to cause a net decrease in the quantity of economic goods.”
Do you understand even the most elementary logic?
I would let you have the last word, but you are just wrong in pure logical terms.
Here is a recent example:
http://business.inquirer.net/money/breakingnews/view/20091204-240094/Philippine-inflation-creeps-up-after-deadly-stormsNSO
And here is another very large example where this argument, in relation to prices, seems to be at odds with reality:
http://www.youtube.com/watch?v=3WnS96NVlMI
And here is another very large example where this argument, in relation to prices, seems to be at odds with reality
No, it isn’t — to paraphrase Mr. Catalan, health care prices can continue to rise, but absent expansion of the money supply, prices in other sectors must drop. Of course, it’s been a month of Sundays since we’ve been absent an expanion of the money supply.
Macroeconomic monetarist crap!
At the firm level, cost-push increases in prices makes perfect sense. The differences over the meaning of inflation have the arguments passing each other like ships in the night. The existence of a different argument is not a refutation of the argument. As far as the meaning of the general price level, I don’t think the idea is sensible at all, but neither is the objection.
Hazlitt, in this particular piece, is obviously not talking about changes in spending pattern, so you are honestly attacking a strawman. The theories Hazlitt was responding to were referring to inflation in the mainstream sense, and it is with that definition that Hazlitt wrote this piece.
I indicated the straw man here. My point is that we should not throw the baby out with the bathwater. I will repeat: “At the firm level, cost-push increases in prices make perfect sense.” But I think it is confusing to shift around in accepting or not accepting mainstream usage of the term inflation. The comment was about this piece in relation to other Austrian usages. Hazlitt is still strictly wrong, even if you accept macroeconomic nonsense arguments about aggregates.
“Expansion of the money supply is both the necessary and the sufficient cause of inflation.”
This statement simply not true with Hazlitt’s usage! And in Austrian usage, it’s just a vacuous truism.
Look, I agree with the Austrian perspective (I hate inflationism), but this is a monetarist line that goes too far. As a matter of fact, the two ideas don’t even have to contradict.
You’re right, they don’t have to contradict. Hazlitt isn’t even talking about what you’re talking about, and it isn’t “monetarist” in any sense of the word.
What Hazlitt said is still wrong! It is “monetarist” as a macro statement. As for your other statement about a drop in supply, you are clearly grasping at straws. You might be happy waiting, but my time-preference can be different. From macro assumptions, the general price level CAN rise without printing money. You can’t just select a convenient time period to ignore. You are wrong.
I’m not sure what you are talking about when you suggest that I “can’t just select a convenient time period to ignore”. I don’t know what time period I am ignoring. When has society as a whole experienced a period of capital deaccumulation?
By the way, macroeconomics is not restricted to monetarists. There are Austrian macroeconomists as there are microeconomists. The difference between monetarists and Austrians is that the latter generally hold into consideration both aspects of the topic. Here, though, Hazlitt is responding to individuals who have a specific idea of inflation in mind. It would be nonsensical for Hazlitt to approach the topic with a different definition of the problem being tackled.
For some strange reason, I have to post twice to get my comments to display.
Cost-Push Prices:
http://www.youtube.com/watch?v=3WnS96NVlMI
Cost-Push Prices :
http://www.youtube.com/watch?v=3WnS96NVlMI
“As long as the political climate remains this unhealthy, a halt to inflation is impossible.”
When was “political climate” ever healthy?
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