Trump is Right

By Robert Wenzel

Well, I found something I can support Combover man on.

Yes, the President has sent out a tweet I can support---almost completely.

On Tuesday morning, the president tweeted:

The United States has VERY LOW INFLATION, a beautiful thing!

— Donald J. Trump (@realDonaldTrump) June 11, 2019

In sending out this tweet, President Trump was in reactionary mode against many mainstream economists and most Federal Reserve Board members who hold the very odd view that some price inflation is good for the economy.

This pro-inflation view is a Dali-like extension of Keynesian economics that aims directly at consumers. Indeed, since the bottoming out of price inflation during the recession in December 2008, the purchasing power of the dollar to buy consumer goods as measured by the government's own CPI index has fallen by approximately 21%.

For some convoluted reason, mainstream Keynesians do not think this is enough destruction of the dollar.

I am not making this up.

Here's what New York Federal Reserve Bank president John Williams said last month when he spoke before the Council on Foreign Relations at their headquarters in New York City.

 [D]espite low unemployment, inflation rates have been running persistently below central banks’ goals. The Federal Reserve, like many central banks, has a goal of keeping inflation at 2 percent.

In the pre-2008 era, inflation was a major concern for the public and central banks alike. And, while I will always be vigilant about inflation that’s too high, inflation that’s too low is now a more pressing problem.

So compared to Williams, Trump sounds like the second coming of Ludwig von Mises. Of course, Trump is not consistent with regard to his Fed comments. He sends out the above relatively sound tweet but also at often calls for the Fed to aggressively lower interest rates--instead of telling the Fed to close down.

But there are even limits to the tweet. Real economic greatness occurs not when there is low price inflation but when prices are falling! Murray Rothbard explained:

The public memory is short. We forget that, from the beginning of the Industrial Revolution in the mid-18th century until the beginning of World War II, prices generally went down, year after year. That's because continually increasing productivity and output of goods generated by free markets caused prices to fall. There was no depression, however, because costs fell along with selling prices. Usually, wage rates remained constant while the cost of living fell, so that "real" wages, or everyone's standard of living, rose steadily.

Virtually the only time when prices rose over those two centuries were periods of war (War of 1812, Civil War, World War I), when the warring governments inflated the money supply so heavily to pay for the war as to more than offset continuing gains in productivity.

We can see how free market capitalism, unburdened by governmental or central bank inflation, works if we look at what has happened in the last few years to the prices of computers. A computer used to have to be enormous, costing millions of dollars. Now, in a remarkable surge of productivity brought about by the microchip revolution, computers are falling in price even as I write. Computer firms are successful despite the falling prices because their costs have been falling, and productivity rising. In fact, these falling costs and prices have enabled them to tap a mass market characteristic of the dynamic growth of free market capitalism. "Deflation" has brought no disaster to this industry.

The same is true of other high-growth industries, such as electronic calculators, plastics, TV sets, and VCRs. Deflation, far from bringing catastrophe, is the hallmark of sound and dynamic economic growth.

Robert Wenzel is Editor & Publisher of EconomicPolicyJournal.com and Target Liberty. He also writes EPJ Daily Alert and is author of The Fed Flunks: My Speech at the New York Federal Reserve Bank and most recently Foundations of Private Property Society Theory: Anarchism for the Civilized Person Follow him on twitter:@wenzeleconomics and on LinkedIn. His youtube series is here: Robert Wenzel Talks Economics. More about Wenzel here.