‘I Love the Inflation’

The 4.2 percent jump in consumer prices in May over the prior year is bad news for Americans. This pace of inflation is more than double the Federal Reserve’s target rate of 2 percent. President Trump, though, seems to be taking it in stride. “I love the inflation,” he told reporters today. “You know why? Because as soon as this war is over… it’s going to come down like a rock.” Even if the pace of inflation slows, though, the cumulative damage will linger.This problem came into focus in the aftermath of the Biden inflation tsunami, when, in the summer of 2022, prices spiked 9.1 percent over the prior year. By the time this inflationary spiral had run its course, prices were on average at least some 20 percent higher than in 2020. Yet consumers were hardly comforted that the pace of inflation had slowed down. They wanted prices to revert to the levels where they stood before inflation surged. This frustration among voters was one of the critical reasons leading Mr. Trump to recapture the White House in 2024. After all, he had put at the top of his campaign platform the pledge to “defeat inflation.” That makes it all the more difficult to understand the president’s avowed nonchalance about price increases. Yet much of today’s inflation trouble — in particular the stubbornness of higher prices — is a byproduct of America’s monetary system.That’s because inflation’s cumulative damage can largely be traced to our fiat money regime. That’s shorthand for a system in which the dollar’s value arises solely from the words “legal tender” inked on our Federal Reserve Notes. Prices denominated in these fiat dollars ineluctably ratchet up, and never fall back down. This monetary system in recent decades has fueled asset bubbles, and a corresponding surge in debt, both private and public. Today’s persistent fiat money inflation contrasts with the results under a specie standard, in which the dollar was defined by law as a fixed weight of gold or silver. The dollar’s convertibility into gold or silver at a set rate imposed budgetary and fiscal discipline on the federal government. This specie standard helped to ensure, over the long run, stable prices. Between 1790 and 1913 America’s average annual inflation rate was 0.2 percent, economists report.That performance points to the wisdom of the Framers who sought in the Constitution to curb emissions of paper money, which had fueled hyperinflation during the Revolution. The nation’s rapid growth at low inflation can be traced to policies proposed by our first Treasury secretary, Alexander Hamilton. He set America on a specie standard with a currency based on the silver weight of a Spanish coin — the “ancient dollar,” he called it. The pace of inflation under Hamilton’s system certainly puts in the shade the monetary policy makers of our time. The overall pace of inflation, to be sure, is being fueled by energy prices. The price of gasoline is some 40 percent higher than last year. Prices excluding food and energy rose 2.9 percent over last year. That, as Bloomberg puts it, “offers cold comfort for consumers who are already seeing price hikes eat into their paychecks.”Feature the fact that average hourly earnings in May rose by 3.4 percent over the prior year, the second month in a row in which wage growth was overtaken by price increases. So what prompts Mr. Trump’s appraisal that today’s inflation “numbers were great”? The news on prices lends more credence to the view of the Fed chairman, Kevin Warsh, that inflation is “the most regressive tax anyone in Washington could come up with.”

‘I Love the Inflation’

‘I Love the Inflation’

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