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Buried Alive in ‘Businessweek’ Vol. 37, No.09a 233 Broadway, New York, New York 10279 • www.grantspub.com MAY 3, 2019 Buried alive in ‘Businessweek’ Things have come to such a sorry pass rency, the Fed chair, Jay Powell, replied, quality improvements where none ex- for the ancient scourge of paper money “It’s a major challenge. It’s one of the ists. They must make allowances for that Bloomberg Businessweek has written major challenges of our time.” cases in which today’s 15 cookies cost its obituary. Inflation is dead, declares Expanding on his boss’s remarks, what yesterday’s 16 did (clever packag- the cover of the April 22 edition (Hank Charles Evans, president of the Federal ing obscures the shrinkflation). Blaustein renders the image below). Reserve Bank of Chicago, last month ad- Considering the margin for er- “Dormant” is in fact the word, as we are vocated bumping up the inflation target ror—no less real for it being unac- about to demonstrate. by a few tenths of a percent. “Indeed,” knowledged—you wonder if there’s Businessweek isn’t wrong to ask what said Evans, “I would communicate com- a meaningful difference between a happened to the consumer price index. fort with core inflation rates of 2.5%, as 2.0% and 2.3% rate of inflation? Or Even the central bankers are feeling long as there is no obvious upward mo- even between 2.0% and 2.5%? sorry for it, rooting it higher. They want mentum and the path back toward 2% Evans implies that the Fed controls it, or, technically, the core personal con- can be well-managed.” the rate. Another Chicagoan, Milton sumption expenditures index, to rise by Few have paid a higher compliment Friedman, positively asserted that it 2% or more per annum. Pretending not to the technical prowess of the inflation does. But hear Chair Powell in congres- to hear, the index drags its feet like a ferrets at the Bureau of Labor Statistics sional testimony on Feb. 26: “In our boy on his way to the dentist. In only than Evans does with that proposal to thinking, inflation expectations are now two months in the past seven years has fine-tune the price target. Calculating the most important driver of actual in- the core PCE hit the aspirational 2%. price indices is rough and ready work. The flation.” Such a record used to define mone- price inspectors must avoid sampling Inflation, then, has become a meta- tary-policy success. Now it’s the mark error. They must not impute product- physical phenomenon, not a monetary of failure. “Lowflation,” Businessweek Two hits, many misses argues, is a consequence of globaliza- 2.75% 2.75% tion, automation and de-unionization, U.S. core personal consumption expenditure price index to which might be added excessive debt measured year-over-year and Bezos-ization. 2.50 2.50 The author of the story, Peter Coy, contends that a spot of inflation “greas- 2.25 3/31/19: 2.25 1.55% es the wheels of commerce.” In this, he echoes the advocates of the “creep- 2.00 2.00 ing” inflation in the 1950s. Then, too, in percent he adds, “some inflation is also useful 1.75 1.75 to central banks because it helps them fight recessions.” in percent The central bankers’ confidence on 1.50 1.50 this score is apparently limitless. They do actually contend that they can gen- 1.25 1.25 erate “some” inflation, stopping just where they intend to stop. When asked 1.00 1.00 at a press conference in March “what kinds of challenges” a subpar rate of 0.75 0.75 debasement presents to the supposed 3/00 3/02 3/04 3/06 3/08 3/10 3/12 3/14 3/16 3/18 guardians of the integrity of the cur- source: The Bloomberg article-GRANT’S / MAY 3, 2019 2 one. To generate more of it, the Fed Ackley’s essay, which ran out under years ago.” For the calendar year, the must lower the people’s confidence in the headline, “Prospect of Avoiding CPI would rise by just 1.3%. (We leave the purchasing power of money. Inflation Is Good,” was dated Dec. 13, for another day a discussion of the dif- It’s a funny kind of ambition for a 1965. It bottom-ticked the rate of in- ferences in computing that index then central bank—no stranger would be a flation for the next 33 years. Not until and now.) In 1964, too, it seemed that pro-measles edict from the National In- 1998 did the CPI record a yearly gain as inflation had gone to heaven. stitutes of Health. Anyway, in the short low as the 1.6% registered in 1965. The The Businessweek argument for the run, is such precision feasible? Inflation prospect of “avoiding inflation” turned death of inflation boils down to the con- expectations, observes James Bianco, out to be very bad indeed. tention that aggregate demand will nev- founder and namesake of Bianco Re- One lesson to draw from these long- er exceed aggregate supply by a margin search, LLC, besides being hard to mea- ago events is that low inflation does not sufficient to strain the limits of domes- sure, track not the things that the Fed necessarily presage even lower inflation. tic production (and no unwanted sur- controls but the squiggles in the crude- “It all depends,” one could say, though plus of dollars will again cause a material oil price chart. As much as the Federal on what it depends is clearest in ret- depreciation in the dollar exchange rate, Open Market Committee may wish to rospect. Looking back, there’s no mis- therefore a material boost in the prices regulate the price of oil (see page 3) taking the building inflationary forces of imported goods). Yet a dozen Demo- or meat (the latter now under a heavy of the mid-1960s. The baby boomers cratic presidential hopefuls, promising inflationary threat from a pig virus in were coming of age, the Vietnam War free college tuition, debt forgiveness, China), such exogenous events are cus- was hotting up, the dollar exchange rate universal health care and more, might tomarily under the control of the Author (then fixed in terms of gold, an ounce as well be running on a platform called of the Universe, not the economists. costing you $35) was coming under well- “No limits.” In December 1965, Gardner Ackley, deserved pressure, the Bretton Woods In a 1957 essay entitled “Welfare, chairman of the Council of Economic monetary system was on its last legs. Freedom and Inflation,” the German Advisers under President Lyndon John- Few connected the dots at the time. economist Wilhelm Röpke argued son, gently reproved The Wall Street Jour- And now? The best case for a new, that inflation is an “illness of money” nal for harping on news of rising prices. unscripted inflation is how impossibly and that it “appears as a moral and a How slight were the rises! Since the unlikely it appears, even in the con- social disease.” bottom of the prior recession, in March text of today’s cyclically incongruous In America, in 1957, the CPI flared to 1961, Ackley pointed out, the CPI had budget deficits and a decade’s worth of a 3.3% rate of rise, but consumer prices increased by just 1.2% a year. Wholesale monetary improvisation. Still, analytical had climbed by 0.3% in 1954 and fallen prices had scarcely budged. Indeed, the minds will want to know more. They by the same percent in 1955; they had president’s economist was able to ob- will ask, What is the cause of inflation increased by only 1.5% in 1956 and serve, “In our whole history since the in 2019? would ascend by 2.7% in 1958. 1710s, there has been no similar period The eternal cause of inflation is “Only” was not the word that Röpke of wholesale price stability.” He meant the loss of confidence in money, the used to characterize a sub-2% rate of in- it as a good thing. very thing the central bankers now say flation. He decried a “creeping, chron- Then Ackley added the following they want to bring about. The funda- ic condition of continually declining words, anticipating the supply-side ar- mental cause of that loss of faith is a money values which becomes steadily guments of Stephen Moore, President persistent excess of aggregate demand more apparent; a ‘cold inflation’ which, Trump’s nominee to the Federal Re- over aggregate supply, with credit, not without rising to fever pitch or show- serve Board: savings, financing the inflationary in- ing other alarming symptoms, is for that crement of spending. That condition, very reason all the more dangerous. This On many occasions in the past several too, would seem to be in place, given problem is quite rightly beginning to years, we have been urged to buy insur- the prospect of a $1 trillion federal overshadow all others.” ance against inflation by slowing down the deficit during a more-than-satisfactory Now Jay Powell calls the shortfall of expansion of overall demand. Had we taken business expansion. inflation from the Fed’s 2% goal “one of this advice we would have sacrificed the un- If the measured rate of inflation con- the major challenges of our time.” Much precedented gains in consumer living stan- tinues to fall short of expectations, it has changed in monetary affairs in the dards, the amazing expansion in jobs, the wouldn’t be the first time.
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