The real cause of our inflation.....
As Milton Friedman concluded and as modern monetary theorists need to learn, 'inflation is always and everywhere a monetary phenomenon.'
thefederalist.com
The late economist Milton Friedman helped
explain the inflation and stagflation of the 1970s. His explanation helped shape the strong economic recovery of the 1980s, built on the
principles of limited government, with sound monetary policy that resulted in a steep decline in what had been rampant, double-digit inflation.
Friedman pointed out that “inflation is always and everywhere a monetary phenomenon.” The seemingly force majeure is actually a manmade problem, caused by the Federal Reserve (Fed) creating too much money. These principles of money and inflation aren’t new.
But those lessons are being disregarded by some in the economics profession. People like
Stephanie Kelton have been promoting
Modern Monetary Theory (MMT), which is virtually a complete reversal of what Friedman espoused and history demonstrated. This theory contends that the federal government’s current deficit spending isn’t an issue — it can, and should, be solved by the Fed creating money to fund it without concern about inflation as long as the U.S. dollar is the world’s reserve currency.
President Joe Biden has not openly endorsed MMT, but
he’s no fan of Friedman either. Instead, he seems content to have many mostly younger congressional Democrats advocate for MMT, which provides convenient and seemingly academic reasoning for financing more federal spending without explicitly raising taxes. It has a similar political appeal that Keynesianism presented almost a century ago, and MMT is just as flawed.
But proponents of MMT do get one thing correct — the Fed can create money to service the debt and avoid a default. But in real terms, meaning adjusting for inflation, this assertion is false. Creating money to service the debt devalues the currency. Investors then receive a lower real return on their holdings of federal debt.
Furthermore, everyone is hurt by inflation, whether they own government bonds or not. Inflation is essentially a tax, as it robs people of their purchasing power at no fault of their own. Everyone who received a 7.5 percent raise over the last year probably thought they would be able to afford more stuff, but they were deceived. Inflation rose just as much — so there was no real raise.
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