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Parents probably dream of sending their kid to the University of Chicago.
Next to the Ivy League or Stanford, the Chicago school is near the top of the
heap. Only 27 percent of applicants are admitted. To be among the roughly
15,000 means prestige and an education to build a lifetime on. The cost for
tuition and fees: $39,381. Room and board is another $12,000 or so. Add books
and other stuff, and the total Chicago-school experience costs
$54,290 a year.
Students learn from the likes of University of Chicago economics
professor Casey B. Mulligan, who believes what the economy needs right now is
a little inflation in all the right places to make things better. Professor
Mulligan
writes for the "Economix" section of
the New York Times, which goes about the task of "Explaining the
Science of Everyday Life."
Mulligan writes that normally inflation is harmful, but "these days
inflation may do less harm than good." He points out that the prices of
most goods march upward over time and that this "general increase in
consumer prices is called inflation." Of course that's not true. The
increase in prices is the result of inflation, which is the increasing
of the supply of money: thus the term "inflating" the money supply.
The Chicago economist then writes that the Federal Reserve is charged
with limiting inflation, "which it can do over the long run by limiting
the supply of money and similar assets in the hands of the public."
In the long run, the Federal Reserve has decimated a dollar's value down
to 2 cents in the just short of a century it has been around. In August of
1971, M2 money supply was $685 billion, in March 2011, M2 was $8.9 trillion.
Mulligan writes that people complain about rising prices, but forget that
their wages are going up at the same time, so consumer purchasing power is
unharmed. Inflation-adjusted wages have been flat to negative. It has taken
two incomes to pay for a household for decades now. Perhaps Mulligan should
get out more.
Seniors should quit bitching, according to Mulligan because, "Social
Security benefits automatically increase with wages in the economy, and
thereby automatically increase with inflation in the long run." However,
according to Social
Security Online, "Under existing law, there can be no COLA
[cost-of-living adjustment] in 2011." Why?
As determined by the Bureau of Labor Statistics, there is no increase in
the CPI-W [Consumer Price Index for Urban Wage Earners and Clerical Workers]
from the third quarter of 2008, the last year a COLA was determined, to the
third quarter of 2010.
So the government says there is no price
inflation and so no COLA for you, retirees. Retirees know better and so does
John Williams at Shadowstats, who says prices are increasing at a 10
percent rate.
"While
Mulligan sees Bernanke with a fine-tipped artist's brush, the Fed is actually
using a spray gun with an unknowable fan size."
Government spending leads to government borrowing, which leads to
inflation when central banks create money out of nowhere to fund that debt.
However, the Chicago economist claims his work shows that inflation is not
associated with increased government spending.
Rightly, Mulligan points out that taxes crimp saving and investment. But
for his big finish, Mulligan claims that since so many people are underwater
on their mortgages and because this is hampering economic growth, "an
inflation that harmed banks and helped homeowners might be an overall
improvement."
One gets the impression that in Mulligan's ivory-tower world, Ben
Bernanke creates money like Picasso painted a picture. After careful
contemplation, staring at the canvass (economy), Ben dabs his brush into his
palette, and then, calmly and carefully, applies the proper color and amount
of paint (money), a gentle stroke, in just the right spot.
F.A. Hayek, who joined the Committee on Social Thought at the University
of Chicago in 1950, believed that money printing could not be used to assure
total employment or to pump up the prices of desired assets whether they be houses or something else. It was impossible for central
bankers to know where the money would go or what the exact effects would be.
Hayek said :
In the study of such complex
phenomena as the market, which depend on the actions of many individuals, all
the circumstances which will determine the outcome of a process … will
hardly ever be fully known or measurable.
So while Mulligan sees Bernanke with a fine-tipped artist's brush, the
Fed is actually using a spray gun with an unknowable fan size. The money goes
some places and not others.
There are bubbles in art prices, while tract-home prices sink. Catfish
prices are jumping, but television
prices are sinking.
Peter Klein wrote that while at
Chicago Hayek found himself among a dazzling group,
with an economics department led by Frank Knight, Milton Friedman, and later
George Stigler.
Back in 1950, having Hayek and Knight teach your kid economics would have
been worth the price. But $50,000 for Professor Mulligan's theories? Try the Mises
Academy instead.
Douglas French
Mises.org
Douglas French is president
of the Mises Institute and author of Early Speculative Bubbles &
Increases in the Money Supply. See his tribute to Murray Rothbard.
Article originally published
on www.Mises.org. By authorization of the
author
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