When Nick Saban was head coach at Michigan State, he was intent on increasing spending for the school’s football facility, and goods/services for the players more broadly. One victory for the then on-his-way-up coach was that he secured funding for five desktop computers. Keep in mind that that this was the 1990s. Computers were expensive then.
Nowadays the purchase of five computers at MSU, Alabama, or for any football program would be laughed at. Don’t you know, most 18-year olds today have supercomputers in their pockets that would make the desktops provided by MSU boosters a quarter of a century ago appear rather dated by comparison.
Economic growth is born of investment, and investment is all about producing exponentially more and better at costs that continue to plummet. Deflation? Of course not. If computers that used to cost thousands can now be had for next to nothing with a wireless plan, we logically have more dollars to direct toward other goods and services.
Saban’s lobbying for desktops came to mind while reading John Cochrane’s latest Wall Street Journal opinion piece. It didn’t sound like him, nor have most of his op-eds of late. Cochrane is mistaking rising prices for inflation. They’re not the same.
That prices are higher today should be a statement of the obvious. To believe otherwise is to believe that a booming U.S. economy in February of 2020 with Americans well employed was just surplus; that Americans had perhaps begun “quitting quietly” way back then.
Except that businesses don’t operate that way. They don’t just employ people to employ people, after which the work done by Americans stateside logically employs hundreds of millions – and realistically billions - of individuals around the world. We know this, and Cochrane knows this, simply because every market good we own is a consequence of intensely sophisticated global cooperation. Only for the lockdowns to happen, and massive federal subsidies meant to subsidize what vandalized reason.
Cochrane has tied the high prices of the present to government handouts in 2020 and beyond as the cause of “inflation.” Supposedly all that soaring demand relative to limp supply. Except that supply and demand mirror each other, by definition. To the extent that Americans are “demanding” things care of the federal government, someone, somewhere is demanding fewer things. Government isn’t some “other.” It can redistribute spending power only insofar as it takes it from someone else.
Back to rising prices, of course they’re high. The production leading up to the lockdowns was the miracle consequence of billions of workers engaged in trillions of commercial relationships. Work divided is the path to monstrous increases in productivity (falling prices), only for command-and-control to rear its ugly head in March of 2020. Suddenly the cooperation was fractured. To be surprised by higher prices today is to thoroughly insult global commerce and to pretend yet again that the brilliantly interconnected production of the world’s working population was a whole lot of nothing. Pre-lockdown production was just “surplus.” Yes, it’s insulting.
So is Cochrane’s inflation fix. While he’s skeptical that the Fed raising “interest rates” to the CPI level will whip what he deems inflation, it seems he’s missing the bigger point: if there’s actual inflation, there's no need for government. Cochane is acknowledging that he doesn’t know whether Fed rate fiddling will work, but since he doesn’t know “whether inflation can fade away without interest rates substantially above inflation,” the “Fed’s actions make some sense.” Really? Why?
If there’s actual inflation, logic dictates that market lenders will demand protection from same. They’ll raise the cost of borrowing not because the Fed thinks there’s inflation, or because Lawrence Summers allegedly predicted it, but because markets are a reflection of what’s known. Cochrane spends time musing about the import of the Fed “raising rates” to levels commensurate with an artificial number (CPI), while ignoring the simple truth that if there’s inflation, actual market forces began responding to it long before he, Summers and other important thinkers discovered it.
Which brings us to the next challenge with Cochrane’s analysis: why is he for government intervention? Think about it. Even if Cochrane’s libertarianism isn’t pure, he has to know that government is generally stupid? And assuming government caused the inflation, or the Fed, or some “other,” why is Cochrane even wondering if government can fix it? And if it aims to fix it, what does fixing it have to do with higher rates from the Fed? Does Cochrane really think the Fed is the high or low cost spigot from which credit emerges from, or is the latter a global phenomenon that no government could ever hope to control?
It all speaks to a problem with definitions. Cochrane seemingly wants inflation to be everything; one day a “money supply” phenomenon, another day a consequence of government spending, another day something born of deficits, rising prices other days, and then some days a consequence of global instability of the Ukraine variety. Except that if inflation is everything, then it’s logically nothing.
Inflation is a shrinkage of the unit of measure. A dollar devaluation. That hasn’t happened since the present White House occupant was sworn in. On the other hand, prices of many goods are much higher today. Are they a sign of inflation? The answer to this question can be found in this write-up’s opening paragraphs.
