Tag Archives: inflation

In the News: Inflation

I’m quoted in a Washington Times article about today’s Producer Price Index release:

Ryan Young, a senior fellow at the libertarian Competitive Enterprise Institute, said the Fed should consider acting even sooner than March.

“The Fed is waiting too long to act,” Mr. Young said. “It has said it will wind down its bond-buying program and raise the federal funds rate starting in March. These are the right things to do, but they should have started months ago.”

With the producer price index rising at an annualized 9.7%, well above inflation’s annualized 7.5% pace, he added that “things are likely to get worse before they get better.”

“The Producer Price Index is a leading indicator, which means it is a sign of things to come,” Mr. Young said. “While we are unlikely to reach Carter-era stagflation territory, we are getting uncomfortably close.”

Read the whole article here.

Inflation Rise Should Trigger Response by Fed, Congress, President

This press statement was originally posted on cei.org.

Inflation is on the rise again, hitting the highest mark in 40 years, according to government figures. CEI Senior Fellow Ryan Young says the Fed, Congress, and President Biden have specific action items that would help get inflation in check:

“Inflation is up yet again, now to a 7.5 percent annual pace. That means the money supply grew 7.5 percent faster than did goods and services over the last year. The Fed can get them back in sync if Congress and President Biden let it. That means keeping political activists off the Fed’s board and not pressuring the Fed to keep money loose during an election year. That is one bipartisan tradition that must stop.

“While Congress is mostly powerless over the money supply—or should be—there is still plenty it can do. Cutting it out with the trillion-dollar spending deficits would be a good start. So would enabling more economic production by removing tariffs and other trade barriers that are clogging supply networks and loosening labor, permit, and licensing regulations that block people from pursuing better opportunities.”

Federal Reserve Signals Interest Rate Hike to Fight Inflation: CEI Statement

This press statement was originally posted on cei.org.

The Federal Reserve today signaled an interest rate hike is coming in March to combat inflation. CEI Senior Fellow Ryan Young believes the Fed needs to act more quickly and points to other tools the Fed, Congress, and the Biden administration should use to lower inflation and help the economy.

Statement by Ryan Young:

“Inflation is happening because the money supply is growing faster than are goods and services. Job number one for the Federal Reserve and other policymakers is to get them back in balance. The good news is that, as expected, the Fed announced it will do this by raising interest rates. The bad news is that it will wait until March to do so. It will also continue its inflation-inducing bond buying program until March, instead of ending it right away. There is no good reason for the delay.

“Interest rate hikes work by slowing the velocity of money, so even if the quantity of money doesn’t change, inflation goes down because each dollar is spent and re-spent fewer times.

“The Fed does have another powerful tool at its disposal besides interest rates—open market operations. By buying and selling government bonds, the Fed can add or subtract from the money supply very quickly. Since inflation is high, the Fed should sell from its portfolio, and remove from circulation the dollars it receives.

“The Fed instead signaled that it will continue to buy bonds until March, even though its portfolio has doubled in just the last ten months and now stands at $9 trillion. While there is a case to be made for gradualism, this is still a mistake.

“Re-syncing the money supply to output is a tricky business, especially when economic activity ebbs and flows with the pandemic. It is easy to overdo it or underdo it. But the Fed can get inflation back under control if Congress and President Biden can resist the temptation to interfere. Unfortunately, it’s an election year, and political interference with the Fed is a bipartisan tradition dating at least back to the Eisenhower and Johnson administrations, respectively.

“There are plenty of things for the political branches to do besides meddle with Fed policy. Getting rid of obstacles to economic growth will help to rebalance the money supply with goods services. Congress and President Biden should remove tariffs, which raise the prices of hundreds of billions of dollars of goods by as much as 25 percent. Federal and state officials should loosen port and trucking rules that artificially clog supply networks. State and local officials should end excessive occupational licensing and loosen overzealous permit, zoning, and land-use restrictions that block opportunities for millions of people. And since deficit spending adds to inflation by increasing the money supply, all levels of government should spend less.”

On the Radio: Inflation

Earlier this week I was on the Lars Larson show to talk about inflation. The audio is here.

I also appeared on the Dave Elswick show on the same topic. The audio is here, starting around five minutes in.

$16 Muffins a Hoax?

The Justice Department’s auditors have been getting a lot of press lately. They found that the department paid $16 each for muffins at a recent event in Washington. At another event in San Francisco, the department spent $76 per person on lunch.

According to the Hilton hotel chain, which hosted the DC muffin event, the auditors didn’t read the invoice very carefully:

Hilton Worldwide, which manages and franchises hotels including the Capital Hilton where the conference took place, says the price included not only breakfast baked goods but also fresh fruit, coffee, tea, soft drinks, tax and tips. It says the report misinterpreted its invoices, which often use shorthand and don’t reflect the full menu provided.

So it appears that part of the story has been exaggerated. The $76-per-person lunch in San Francisco, also held at a Hilton, included “slow-cooked Berkshire pork carnitas, hearts-of-romaine salad — and coffee at $8.24 a cup.” That one still looks dodgy. A bit fancy for a government conference. But the muffins do seem to have been blown out of proportion.

In related news, after an assistant told Federal Reserve Chairman Ben Bernanke that the muffins didn’t actually cost $16, he was reportedly overheard muttering to himself, “soon…”

It Gets Better: Sears Catalog Edition

I forget who I’m paraphrasing here, but the two iron laws of modernity are 1) things are getting better, and 2) people think they’re getting worse. The short video at the bottom of this post is one way to prove the first law to victims of the second law. It’s a rough cut adapted from a recent talk Don Boudreaux gave; I eagerly await the full version.

When I took macroeconomics in graduate school, the professor circulated a Sears catalog from 1900 or so around the classroom. Most of the prices were given in cents, not dollars. Now imagine that you could buy anything you wanted from that catalog today at those low prices. They’re still too expensive. Take these vacuum cleaners pictured below:

$12.50 for a vacuum cleaner? What a deal! And yet, given the choice, I would not buy it. Too expensive. I wouldn’t even be willing to pay $5.00 for it. Heck, I wouldn’t even want it for free.

Why is even a price of zero too expensive for that vacuum? Because it doesn’t even use electricity. It’s manually powered. No thanks. I’m better off with the $90 vacuum I bought a few years ago.

Of course, I’ve been ignoring inflation. As a useful public service, the Minneapolis Fed has an inflation calculator right on its homepage. It only goes back to 1913, and our vacuum is a 1909. But that’s close enough for the point I’m making.

If that vacuum cost $12.50 in 1913, it would cost $285.17 in 2011. This manually powered vacuum, that I wouldn’t pay a dime for, is three times as expensive in real terms as my electric vacuum.

Things are better now. Modernity is a blessing. The first law holds. Hopefully the second law won’t prove quite so rigid.

Click here if the embedded video below doesn’t work. It’s well worth 1:26 of your time to watch.

Printing Money Troubles

There is a lot of talk lately about the Fed’s quantitative easing policy. It is an indirect way of printing money, and also a huge mistake. It turns out the Fed can’t even print money the direct way without making mistakes. A new $100 bill that is harder to counterfeit has been rolling off the presses recently. 1.1 billion of them have been printed so far, at a cost of $120 million.

CNBC reports:

An official familiar with the situation told CNBC that 1.1 billion of the new bills have been printed, but they are unusable because of a creasing problem in which paper folds over during production, revealing a blank unlinked portion of the bill face.

A second person familiar with the situation said that at the height of the problem, as many as 30 percent of the bills rolling off the printing press included the flaw, leading to the production shut down.

The total face value of the unusable bills, $110 billion, represents more than ten percent of the entire supply of US currency on the planet, which a government source said is $930 billion in banknotes.

Coincidentally, these would be the first bills to feature Timothy Geithner’s signature.