Conservative and Liberal Orthodoxy Regarding Inflation, And Its Actual Resolution

Neither perspective has any actual understanding of inflation’s actual cause, and neither has a prescription for dealing with it. They DO have fallacious and incomplete beliefs regarding it as well.

Conservatives think Freidman’s dictum that “inflation is always and everywhere a monetary phenomenon” when monetary inflation is actually difficult to create except when both monetary looseness and other exogenous factors make it almost a fait accompli. Liberals on the other hand have now decided that if monetary looseness occurs there will still not be inflation. Of course we are in debt deflationary times so their claim that it will not occur is just disingenuous or stupid…or both.

The thing is one has to consider the economic circumstances (what the liberals do not do) and drop the terminal orthodoxy (what the conservatives do). In modern technologically advanced economies cost inflation is the real culprit due to the fact that the rate of flow of total costs and so prices always exceeds the rate of flow of total individual incomes (not total money)…and when monetary stimulus occurs eventually inflation will take place simply because businesses seeing  more money coming available….will of course raise their prices.

What needs to happen is an abundant, costless and continuing boost to individual income coupled with a policy that takes adult, responsible, ethical and yet gracious and beneficial control over the entire costing/pricing system so it benefits all rather than not doing so and treating the economy as if it was in equilibrium and stupidly worshiping it as if it were a god that must not be touched or  interfered with.

These policies would be imminently practical and pin point the two major problems of modern economies, namely a chronic lack of adequate effective demand and the erosion of same via chronic cost inflation.


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