Category Archives: inflation target

“Inflation,” Properly Defined

What Is Inflation in Economics? Definition, Causes ...

The use or rather misuse of language has always been an effective tool of politicians to enact their agendas.  George Orwell’s “Politics and the English Language” brilliantly showed, in his day, how language was being manipulated for all sorts of totalitarian measures:

Political language — and with variations this is true of all  political parties, from Conservatives to Anarchists — is designed to make lies sound truthful
and murder respectable, and to give an appearance of solidity to pure wind. One cannot change this all in a moment, but one can at least change one’s own habits, and from time to time one can even, if one jeers loudly enough, send some worn-out and useless phrase —
some jackboot, Achilles’ heel, hotbed, melting pot, acid test, veritable inferno, or other lump of verbal refuse — into the dustbin, where it belongs.*

Since its publication in 1946, matters have only gotten worse.  For example, in today’s parlance words such as “racism,” “discrimination,” “fascism” have lost all meaning and are usually used by the Left to smear its political opponents.

In the sphere of economics, examples abound of the misuse of terms and concepts all of which advance the interests of the politically-connected elites, technocrats, governments, and the banking establishment at the expense of everyone else.  One of the most glaring examples which, after the financial collapse in 2020, has now become more prominent in daily life, has been the meaning of the word “inflation.” 

Inflation, at one time, and properly understood meant an increase in the money supply; it did not mean an increase in prices.  A rise in prices was and still is, the result of inflation.

The meaning of inflation, however, has been deftly misused by the world’s monetary lords to cover their own nefarious machinations.  By deliberately changing the term it deflects the focus of their activities which can thus be blamed on others – greedy businessmen, oil cartels, workers demanding higher wages, etc.

Since central banks have complete control of the money supplies of the world, when inflation is properly understood its cause can be directly traced to them, which may lead to some inconvenient – for the banksters at least– inquires such as: “How did they attain such power and privilege?”

Redefining inflation has been done to disguise and shift focus away from the actual cause of what America and many economies of the Western world are now experiencing in the startling rise in both producer and consumer prices.  This is the result of the central banks’ expansion of the money supply to mind-boggling proportions purportedly to fight the corona plandemic, but in reality it has been done to offset the financial implosion which began in late February/March of 2020 before the unnecessary and destructive lockdowns began.  The lockdowns and closing of the economies gave cover for the Federal Reserve and central banks to create vast amounts of money and credit to salvage, and then re-inflate a bubble in the stock and asset markets.   

An accurate account of the matter will show that the financial collapse of the system really began in the fall of 2019 as the “repo” market began to meltdown, causing the Fed to intervene with injections of “liquidity” to keep interest rates from spiking.  However, just like the meaning of inflation has been corrupted, so has the narrative of the financial collapse of 2020 been purposely skewed.

As a separate discipline, economics developed in large part in reaction to British Mercantilism of the 18th century.  Economic theory was used by authors such as Adam Smith in his Wealth of Nations to debunk the system of regulations, taxes and subsidies that the British government imposed.  Such economists, as did later schools of thought, most notably the Austrians, used economic thinking and its terms to expose the baneful effects of government intervention, fiat money, and the benefits of free trade. 

Over time, however, most economists became corrupted and instead of acting as a check on state power, became champions of regulation, central banking, and all sorts of social engineering schemes.  Economists were paid for their sell out with cushy positions and jobs in the state apparatus to manipulate language and doctrines. 

Today, an inflation rate of 2% is regarded by Fed officials as good for the economy and something monetary policy should try to achieve.  Previously, a rise in prices of 2% was seen for what it was – a loss of purchasing power hurting the middle and lower classes the worst while benefiting the wealthy.

For those who seek to rid economics or, for that matter, all the social sciences of deliberately misleading language and terms, George Orwell’s works are indispensable.  It is, therefore, incumbent for truth seekers of all persuasions to do so not only for their own benefit, but to maintain the sage author’s legacy.

*https://libcom.org/files/Politics%20and%20the%20English%20Language%20-%20George%20Orwell.pdf

Antonius Aquinas@AntoniusAquinas

https://antoniusaquinas.com

 

The Fed’s “Inflation Target” is Impoverishing American Workers

Powell   Fed Chair Jerome Powell apparently doesn’t see the pernicious effects of inflation

At one time, the Federal Reserve’s sole mandate was to maintain stable prices and to “fight inflation.”  To the Fed, the financial press, and most everyone else “inflation” means rising prices instead of its original and true definition as an increase in the money supply.  Rising prices are a consequence – a very painful consequence – of money printing.

Naturally, the Fed and all other central bankers prefer the definition of inflation as a rise in prices which insidiously hides the fact that they, being the issuers of currency, are the real culprit for increased prices.

Be that as it may, the common understanding of inflation as rising prices has always been seen as pernicious and destructive to an economy and living standards.  In the perverted world of modern economics, however, the idea of inflation as an intrinsic evil has been turned on its head and monetary authorities the world over now have “inflation targets” which they hope to attain.

America’s central bank is right in line with this lunacy, as it has been reported that at the Fed’s “May minutes” it wants “a temporary period of inflation modestly above 2 percent [which] would be consistent with the Committee’s symmetric inflation objective.”* Translated into understandable verbiage, the Fed wants everyone to pay at least 2% higher prices for the goods they buy.

Yes, by some crazed thinking US monetary officials believe that consumers paying higher prices is somehow good for economic activity and standards of living!  Of course, anyone with a modicum of sense can see that this is absurd and that those who espouse such policy should be laughed at and summarily locked up in an asylum!  Yet, this is now standard policy, not just with the Fed, but with the ECU and other central banks.

The baneful consequence of this economic quackery is being felt by American workers as admitted by the Labor Department.  Instead of spurring expansion, inflation is eating into and depressing wages:

For workers in ‘production and

nonsupervisory” positions, the value

of the average paycheck has actually

declined in the past year.  For those

workers, average ‘real wages’ – a

measure of pay that takes inflation

into account fell – from $22.62 in

May 2017 to $22.59 in May of 2018.*

While the decline in nominal wages is not significant, the manner in which the government now calculates inflation has been skewed to understate its impact.  Under the previous calculation, the current US inflation rate is probably closer to 5%.

Wage stagnation is not new.  Average real wages peaked more than 40 years ago and have fallen in real terms ever since.  Not surprisingly, the drop in wages in real terms began soon after the US went off the last vestiges of the gold standard in 1971.

As sound theory has long ago demonstrated, the idea of economic growth through money printing is absurd.  Increases in living standards and real wages can only come about through savings, investment, and capital accumulation.  Workers who have superior tools and equipment are obviously more productive than those that do not. Yet, capital goods have to be produced and production takes place over time.  Savings allow for the production process.

The level of wages are also closely linked to savings.  The greater savings an economy has enables entrepreneurs to bid for workers and increase wage rates.  This is how wages rise – competition for labor among businessmen pushes up wage rates.  The more savings entrepreneurs have, the higher they can bid for employees.

How and why wage rates rise and how employment is created had been understood by economists of yesteryear.  Today, however, the profession is dominated by “inflationists” and monetary cranks who believe that nearly every economic problem can be solved by the printing press.  Anyone who holds such ideas cannot be taken seriously.

While the Federal Reserve may think an inflation target will create prosperity, the reality for real wages is quite the opposite.  The laws of economic science have not been repealed.  An inflation target will lead to the impoverishment of not just workers, but lower living standards for all.

inflation target.jpg

*Jeff Stein and Andrew van Dam, “For the Biggest Group of American Workers, Wages Aren’t Just Flat.  They’re Falling.”  The Washington Post.  16 June 2018 A10.

Antonius Aquinas@AntoniusAquinas

https://antoniusaquinas.com