Steve Forbes’ ‘Inflation’ — In the Nick of Time

Lower energy prices will end the inflation. Kinder employers will end the inflation. More computer chips for cars and coffee beans will end the inflation. Jerome Powell will end the inflation. Halting Putin will end the inflation. These are but a few of the explanations with which Americans confront what for many is a new experience — serious inflation. Yet there’s more to the inflation challenge than prices, employment policy, interest rates, or, even, wars.How much more becomes clear in “Inflation: What It Is, Why It’s Bad, and How to Fix It,” by Steve Forbes, Nathan Lewis and Elizabeth Ames. The book, due out tomorrow from Encounter, provides both a clear explanation of our new national problem and the antidotes that could solve it. It is a gem of a book that couldn’t be more timely as we enter an election season that could well turn on the monetary issue.Mr. Forbes and his co-authors commence with a list of what inflation isn’t. Inflation isn’t nasty employers, or even erroneous energy companies. It isn’t chip shortages. It isn’t even prices. Prices are mere signals, like the lights on a dashboard. The lights are telling us that our government has over time supplied too much money. As Mr. Forbes & Co. remind us, “inflation is the distortion of prices when money loses value.”Put simply, as it was in the days before Modern Monetary Theory, inflation is “too much money chasing too few goods.” Governments, as the authors remind, have allowed this error before. Roman emperors debased their currencies by gradually reducing their weight in precious metals; Nero added base alloys to the denarius to fund his riotous activities, and as Suetonius, via Mr. Forbes, reminds us Nero “wasted money without stint.”Inflation took off, driving the price of wheat, key for the people’s bread, to the sky; the empire collapsed. America has had her own inflations, generated, as Mr. Forbes points out, only after America detached its currency from gold by ending the old Bretton Woods gold exchange standard. This error was carried out by the Johnson, Nixon, Ford and Carter Administrations and the Federal Reserve, whom the Presidents bullied into holding down interest rates.Today’s workforce is young enough that it doesn’t recall what it was like to wait hours in line for gasoline or to pay double-digit interest rates on mortgages. Now our lead inflation dove, Stephanie Kelton, recommends that should inflation become dire, it could be controlled by fostering “an economy that is productive enough.” Professor Kelton starts on the correct path — more goods from increased productivity can absorb the extra money of inflation.Ms. Kelton stumbles, though, on the solutions, recommending government spending on infrastructure or education, something similar to what President Biden recommends. Here is where Mr. Forbes’ little volume adds real value. For Messrs. Forbes and Lewis and Ms. Ames point out why Ms. Kelton stumbles: she falls for the fallacy that government generated growth is actually productive, when in fact the government is a remarkably poor investor.The authors shine a light where Ms. Kelton cannot, on more effective policies to expand goods and services. The model that rescued the economy from the shrink and stagflation of the 1970s included not only tightening money — the heroic work of Federal Reserve Chairman Paul Volcker — but also policy, such as transportation deregulation under President Carter, and, most critically, under President Reagan that really generated production.It was these supply-side measures that allowed the economy to grow productively. In Mr. Carter’s era, Congress pushed through a radical reduction in the capital gains tax. President Reagan then pushed through other major tax cuts, including key cuts to the income tax rates. What Reagan understood was that “Volcker’s success, combined with Ronald Reagan’s free market policies, set off an economic boom.”Today voters and politicians are as confused as Americans were in the 1970s: Democrats seek, a la Ms. Kelton, more spending, but Republicans do as well (the current Republican obsessions include universal income, child credits, and other consumer tax breaks). As “Inflation” also notes, though, finding our way should be easier than in the 1970s, as the internet conveys real time costs of inflation to Americans much faster than the newspapers in the day.“A sound dollar anchored by gold” — Mr. Forbes’ recommendation — sounds radical. Had America remained on a version of the gold standard in the 1970s, though, we would have been forced much sooner to curb the spending that stoked the inflation. It’s past time to consider such a standard. Combining tight, or gold based, money with a reduction in the tax burden on producers would spare us the kind of trouble America endured in the 1970s — if only we dare.

Steve Forbes’ ‘Inflation’ — In the Nick of Time

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