"If one-half of the commodities in the market rise in exchange value, the very terms imply a fall of the other half; and reciprocally, the fall implies a rise." – John Stuart Mill, Principles of Political Economy
There was a time - particularly among thinkers on the supply-side and supply-side adjacent right - when it was accepted wisdom that production buys production. From the previous truth, it was a known quantity that precisely because governments produce nothing, they by extension cannot introduce any new demand. All governments can do is place the power to demand in other sets of hands through the extraction of precious resources (taxation, borrowing, but nearly always both) from the actual economy.
That times have changed is a lamentable reality, and with the change so has changed the definition of inflation. The latter is quite a bit more malleable than the commodity (gold) that's for the longest time existed as an objective truth teller about what governments are doing to our money. Inflation is what pundits and economists want it to be, not much else.
Take columnist Joseph Sternberg. Sternberg wonders if those around him (left and right) “know what inflation is?” In a piece asking the previous question, Sternberg never addressed whether the dollar rose or fell versus foreign currencies, gold or both during 2021-2022, a time that he and many other members of the pundit class claim was notably inflationary.
It would have been useful to address which direction the dollar was going simply because what Sternberg deems inflation would have to be the first one in the history of mankind that occurred without a devaluation of the unit of measure. That would be the dollar, in our case. Alas, the value of the dollar was glossed over.
That Sternberg didn't bring up the dollar’s value was and is important, simply because per monetary expert Nathan Lewis, someone who surely knows what inflation is, “There are a kajillion reasons why this price or that price might rise for this or that reason," all of them having nothing to do with inflation. Inflation is a shrinkage of the monetary medium, after which rising prices can - in instances of devaluation - be an effect of the shrinkage.
What's important is that rising prices aren't on their own evidence of inflation. Even more important, rising prices most certainly can't cause inflation. To say they do is like saying suntans cause sun. Causation is being reversed. Rising prices are at best an effect of actual inflation, which is always and everywhere a devaluation of the currency.
From these truths, those who apparently don’t know what inflation is can point out that the biggest driver of falling prices (which are decidedly not deflation) is the number of specialized hands and machines at work in the production of market goods. Basic stuff, first pages of Adam Smith stuff. You know, the pin factory. One man working alone could maybe produce one pin per day, but several working together could produce tens of thousands. Which is a reminder that easily the biggest driver of rising prices (again, not inflation) would be a reduced number of specialized hands and machines at work in the production of market goods.
Inflation know-nothings (including yours truly) have made this point since 2021, that the 2020 evisceration of globalized production agreements (think lockdowns) painstakingly put together around the world and over many decades logically explains prices that are elevated to this day, and that the elevated prices are not just not evidence of inflation (how could command and control cause inflation?), but they couldn’t even drive up the general price level, whatever that is. See John Stuart Mill up top, or just take a look at the money in your own wallet. If you're paying more for eggs then you have fewer dollars for chicken.
Peter Orszag alluded to precisely the above truth about compromised production in a recent Washington Post op-ed (and in a study), only for Sternberg to wonder once again “if the eminent dismal scientists writing these papers remember what inflation actually is.” It’s possible and even likely that the demand-side Keynesian in Orszag doesn’t, but the more valuable revelation form Orszag's report was that it plainly discredited the Keynesian demand-multiplier theory (prices rose in countries like Germany and England despite much more modest Covid relief), and in the process provided more evidence to the supply-side right that production is always and everywhere the sole source of demand.
Which is what’s unfortunate about this whole affair. Sternberg missed the chance to productively use Orszag’s study to force the Keynesian left to come to terms with what’s always been true: governments can in no way ever increase demand.
Except that if Sternberg were to make noise about the gem handed him by Orszag, he would have to acknowledge just how much the right has politicized inflation. Governments can't produce demand, period. The undeniable truth is that precisely due to the lockdowns, prices of all manner of goods were going to rise for an extended period no matter the president in office, and they were precisely because they had nothing to do with inflation.
