17 Sep 2009

Orwell Lives! The WSJ Takes Inflation Spinning to New Low

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Well shoot, the punchline isn’t nearly as effective if I can’t link you to the actual headline, but I swear in today’s A-section of the Wall Street Journal, there was a story (it was on the right column of a left-handed page) with the following title:

Prices Rise, Inflation Calm

I threw out the paper and now I can’t find the story on Google…

So let’s recap what’s happened with the doublethink on inflation. Originally, inflation referred to an expansion in the money and/or credit supply. (Depending on the economist, the precise definition differed. E.g. some would say, “Expansion of bank credit above the influx of actual gold,” or some would say, “An expansion of the stock of money higher than the expansion of demand to hold money.”) But the point was, inflation referred to the increase in units of money chasing goods.

Then in the first half of the 20th century, the definition morphed so that inflation came to mean “rising prices.” I don’t think this was a coincidence; it’s obvious that the central bank is causing inflation when the very term means, “The supply of money.” But if we’re instead referring to rising prices, why, just about anybody could be responsible! It might be Arab oil tycoons, or union bosses, or greedy businessmen. How can the poor Fed officials, in their mission to preserve the value of the dollar, be expected to match wits with the likes of those rascals?!

But now we see–what with the news reports saying that last month’s CPI rose a “tame” 0.4%–that apparently the definition has changed once again. Now, inflation means “the expected rise in prices–with energy and food prices taken out, where necessary–over the next few years.” So even if prices just jumped up at an annualized rate of 4.9% last month, inflation is still “tame” because hey, unemployment’s high and we all know, you can’t have stagflation. That’s impossible.

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