PDA

View Full Version : Real Inflation and Ron Paul's Incomplete Answer




MattButler
10-27-2011, 11:27 AM
Ron Paul was on the center seat recently on Fox News. I thought it was a good interview. He was asked about who he'd appoint as chairman of the Fed and also he made a comment about inflation. It is tough in these debates to explain the difference between monetary inflation and price inflation. The people only understand price inflation. Paul understands this. Sometimes he gets caught in the trap of arguing statistics, such as which CPI we should look at. I think he is missing a potentially powerful political point.

We should have a lot lower prices today than 5 years ago and certainly 10 or 20 years ago. Prices should be falling right now as we speak!

During the period 1869 to 1913 according to Murray Rothbard, prices fell 30%. That was a result of an industrial revolution. Today we've got through an electronic revolution, and we have much cheaper means of doing business, immediate electronic access to consumers and other businesses. We have instant communication and vast databases online. It has been a true technological revolution similar to the industrial revolution of 100 years ago. I don't think its over yet either. We consumers should be enjoying the fruits of all this! Yet prices today go up and up with no end in sight. We are being robbed by inflation!

There are other reasons we should expect falling prices today.

The economy has slowed and even gone negative, its been that way for a while, possibly ten years even. During this time businesses have done everything they could to cut costs. When the economy goes negative, and people lose jobs and are hurting and reduce spending, and when firms are forced to cut costs, does it not make sense that prices should be falling? Much of our manufacturing has been out-sourced to low wage China so that business can produce cheap products. Does it not make sense we should have lower prices on all these goods and not higher prices? We have 20MM empty houses, it should be very cheap right now to rent or purchase a house and mortgagors ought to have significant bargaining power to restructure their loans with banks. Again, we are being robbed by inflation!

If we are forced to argue price inflation and not monetary inflation, we should not assume prices remain stable, rather we should assume that prices should be falling, especially so during these last years. That is the standard by which we should measure today's price inflation. By this standard, today's inflation is massive.