Story Stream
recent articles

Last week U.S. cargo airline Atlas Air took delivery of the last newly manufactured Boeing 747. This week, Federal Reserve Chairman Jerome Powell told a conference comprised of the economically-focused that on the matter of “inflation,” the Fed has “a long way to go.” The source of Powell’s pessimism was “extraordinarily strong” jobs numbers from last week that apparently signal a U.S. economy growing "too fast."

Oh dear.

Of course, some are perhaps wondering what the final delivery of an airplane has to do with the Fed and its self-proclaimed “fight” against inflation. Please read on. 

Economists in the Fed’s employ (and realistically, economists in general) believe that economic growth causes prices to rise, and they equate rising prices with inflation. Actually inflation is currency devaluation, which means it has nothing to do with economic growth, and frequently nothing to do with rising prices. More on what inflation is in a bit.

For now, it’s useful to point out that the surest sign of economic growth is falling prices. Figure that growth is born of investment meant to produce exponentially more goods and services at prices that continue to fall. Applied to the 747 and its ongoing use as a cargo jet, its very existence has long been a source of growth that results in falling prices for the plane enabling not just enhanced global cooperation among workers, but also enhanced global access to the fruits of the production of workers dividing up labor around the world.

To which Powell apologists, Fed economists, and economists in general might say that what has Powell worried is “inflation” that’s allegedly a consequence of “extraordinarily strong” job growth that could result in a lack of workers on the way to higher wages. Once again, none of what’s been described would have anything to do with what is a currency devaluation (inflation), but it should be pointed out that jobs are always and everywhere a consequence of investment, and investors are seeking future returns in dollars when they put wealth to work. Which means surging employment would signal the opposite of “inflation,” which is a currency devaluation, but I digress.

Seemingly ignored by Powell and an economics profession that feeds him with fallacy is that the U.S. economy is not some kind of impregnable island. Everything produced in the U.S. is a happy consequence of productive hands, machines, and factories the world over. The Boeing 747 explains this happy truth well.

Indeed, as reported by the New York Times and other news outlets in concert with the last 747 delivered, these remarkable jets are the wildly sophisticated result of over 6 million parts built around the world. Please stop and think about that.

Powell et al fear “inflation” born of “extraordinarily strong” job growth stateside, but then every economic endeavor stateside includes once again humans, machines and factories operating around the world. It’s a reminder that in focusing on job growth in the U.S., Powell and others like him don’t account for the fact that U.S. producers like Boeing aren’t limited to capacity that exists in the United States alone. That they aren’t should have Powell and his crowd resting easy that soaring job growth stateside couldn’t exist as an inflation problem even if it were inflation. It’s not. Again, inflation is currency devaluation.

After which, it’s useful to point out that absent access to global labor, machines, and factories, it’s a safe bet to say the 747 wouldn’t exist as is. Lest readers forget, it’s an ever-widening division of work that makes affordable and doable what wouldn’t be affordable and doable absent it. In other words, the global division of labor and capacity that Powell’s alleged models ignore is what enables the falling cost of everything for those of us who reside in the real world.

The good news amid all this confusion exhibited by Powell is that credit goes where it’s treated well, and without regard to the machinations of central planners like the Fed Chairman. In other words, the Fed’s attempts to put people out of work to fight “inflation” will prove toothless in the "closed economy" that is the world economy. This same Fed will also be toothless on the matter of inflation itself when it’s remembered that the dollar’s exchange value isn’t, nor has it ever been part of the Fed’s policy portfolio.

Basically, a lot of people hung on Powell’s errant words this past week despite them having nothing do with inflation, and despite Powell being powerless to stop it. In time, we’ll all wonder why so much attention was wasted on an entity – the Fed – that has so little relevance.  


John Tamny is editor of RealClearMarkets, Vice President at FreedomWorks, a senior fellow at the Market Institute, and a senior economic adviser to Applied Finance Advisors (www.appliedfinance.com). His latest book is The Money Confusion: How Illiteracy About Currencies and Inflation Sets the Stage For the Crypto Revolution.

Show comments Hide Comments