Slouching To Central Planning

The country’s Treasury Secretary reportedly expressed her surprise at the inflation number. Consider. The purported job of this one-time Fed Chair was to monitor the integrity of the nation's monetary system.

She, with her stable of 400 Phd economists – steeped in such esoteric language as measuring the velocity of the ding-dong times the second derivative of the dooh-dah – was somehow taken aback by what a bright Fourth Grader could grasp i.e. the more money you print the less value each unit would have.

Yes, print. Cut to the current Chair of the Central Bank (Fed) and spend literally thirty seconds to see through years of obfuscating terms like quantitative easing for a peek at a fundamental truth (Jerome Powell - we print money - 60 minutes interview). The current inflation story may indeed be quite serious but perhaps really not all that complicated. The Beginner’s Mind might behold it in terms of simply market place distortion.

After all, inflation showed up long before we could even spell CPI. It started in the form of asset-price inflation. The soaring nominal price of things like stocks, bonds, and real estate largely reflected the unnatural growth in money supply. Together with the artificial suppression of interest rates, the so-called asset bubble exploded, serving to enrich a certain subset of the population, i.e. the asset owners. It added little to real economic growth.

Only later after this printing orgy found its way into the consumer marketplace did those close to the financial levers suddenly find religion. Woe to all the little guys, however, who missed the asset bonanza, left to cope with the lagging effects of this “quantitative easing." The Beginner now begins to get a feel for the true origin of wealth disparity.

Let’s discuss whether we still have a market economy when the creation and distribution of prosperity comes less from the bottom-up contribution of actual value and more from a top-down and insider-friendly financial framework. After all, the creation of obscene paper wealth was largely a function of catching the artificial tsunami wave of liquidity.

We might get beyond some of the complications – e.g. the interplay between monetary vs. fiscal policy; the way in which the “off-balance sheet” nature of the Fed enables and hides the truth of the nation’s horrendous financial condition (MM 6/8/20 WTF: What The Fed) – to reveal the fiction that the Fed, a creature of the private banks originally established by them in 1913 to act as a lender of last resort, is some sort of independent arbiter of sound monetary policy.

What comes to mind is a Politburo, those policy-making committees of the Soviet Union that determined the cost and availability of most everything. Let’s be careful what we wish for when the most important ingredient in an otherwise free market – the cost and availability of money (capital) – is set like potatoes in those earlier communist regimes. The result might be an arbitrary, capricious, whimsical, insider distortions that . . . hmm . . . giveth to some through excessive money printing with suppressed interest rates and taketh away from all the others via inflation.

Are we slouching towards a statist economy? Let’s leave the last word to Churchill as he observed: “The inherent vice of capitalism is the unequal sharing of the blessings; the inherent virtue of socialism is the equal sharing of miseries.”

Or, perhaps, the last word ultimately belongs to us as we consider, entertain and discuss other perspectives.