{"id":1330791,"date":"2022-02-23T05:10:00","date_gmt":"2022-02-23T10:10:00","guid":{"rendered":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1330791"},"modified":"2022-02-23T07:53:42","modified_gmt":"2022-02-23T12:53:42","slug":"the-real-cause-of-inflation-is-insane-government-spending","status":"publish","type":"post","link":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/the-real-cause-of-inflation-is-insane-government-spending\/","title":{"rendered":"The Real Cause Of Inflation Is Insane Government Spending"},"content":{"rendered":"<aside class=\"mashsb-container mashsb-main mashsb-stretched\"><div class=\"mashsb-box\"><div class=\"mashsb-count mash-medium\" style=\"&quot;\"><div class=\"counts mashsbcount\">18<\/div><span class=\"mashsb-sharetext\">SHARES<\/span><\/div><div class=\"mashsb-buttons\"><a class=\"mashicon-facebook mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fwww.conservativenewsdaily.net%2Fbreaking-news%2Fthe-real-cause-of-inflation-is-insane-government-spending%2F\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Facebook<\/span><\/a><a class=\"mashicon-twitter mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/twitter.com\/intent\/tweet?text=&amp;url=https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1330791&amp;via=ConservNewsDly\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Twitter<\/span><\/a><a class=\"mashicon-subscribe mash-medium mash-nomargin mashsb-noshadow\" href=\"#\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Subscribe<\/span><\/a><div class=\"onoffswitch2 mash-medium mashsb-noshadow\" style=\"display:none\"><\/div><\/div>\n            <\/div>\n                <div style=\"clear:both\"><\/div><\/aside>\n            <!-- Share buttons by mashshare.net - Version: 4.0.47--><div class=\"row justify-content-center\">\n<div class=\"col-12\">\n<figure class=\"article-thumbnail mb-30 mb-sm-60\">\n<\/figure><\/div>\n<\/div>\n<p>Watching the screen on a gas pump while filling your vehicle\u2019s tank is liable to induce a panic attack. Paying for a used car almost requires taking out a second mortgage. Speaking of mortgages, members of the middle class are being priced out of the housing market as home prices march relentlessly upward.\u00a0<a href=\"https:\/\/www.wsj.com\/articles\/us-inflation-consumer-price-index-december-2021-11641940760\" target=\"_blank\" rel=\"noreferrer noopener\">Many price increases<\/a>\u00a0are out of control.<\/p>\n<p>How did we get here? A little over a year ago, and in the years before the Covid-19 pandemic, most prices were relatively stable. But more recently, general price inflation is at a <a href=\"https:\/\/fred.stlouisfed.org\/graph\/?g=LT5x\" target=\"_blank\" rel=\"noreferrer noopener\">40-year high<\/a>.<\/p>\n<p>The late economist Milton Friedman helped <a href=\"https:\/\/www.nobelprize.org\/uploads\/2018\/06\/friedman-lecture-1.pdf\">explain the inflation<\/a> and stagflation of the 1970s. His explanation helped shape the strong economic recovery of the 1980s, built on the <a href=\"https:\/\/www.hoover.org\/sites\/default\/files\/uploads\/documents\/friedman-government-problem-1993.pdf\">principles of limited government<\/a>, with sound monetary policy that resulted in a steep decline in what had been rampant, double-digit inflation.<\/p>\n<h2 id=\"inflation-is-a-monetary-phenomenon\">Inflation Is a Monetary Phenomenon<\/h2>\n<p>Friedman pointed out that \u201cinflation is always and everywhere a monetary phenomenon.\u201d The seemingly force majeure is actually a manmade problem, caused by the Federal Reserve (Fed) creating too much money. These principles of money and inflation aren\u2019t new.<\/p>\n<p>But those lessons are being disregarded by some in the economics profession. People like\u00a0<a href=\"https:\/\/www.nytimes.com\/2022\/02\/06\/business\/economy\/modern-monetary-theory-stephanie-kelton.html\" target=\"_blank\" rel=\"noreferrer noopener\">Stephanie Kelton<\/a>\u00a0have been promoting\u00a0<a href=\"https:\/\/www.fraserinstitute.org\/studies\/primer-on-modern-monetary-theory#:~:text=Modern%20Monetary%20Theory%20(MMT)%20is,pay%20for%20this%20increased%20spending.\" target=\"_blank\" rel=\"noreferrer noopener\">Modern Monetary Theory<\/a>\u00a0(MMT), which is virtually a complete reversal of what Friedman espoused and history demonstrated. This theory contends that the federal government\u2019s current deficit spending isn\u2019t an issue \u2014 it can, and should, be solved by the Fed creating money to fund it without concern about inflation as long as the U.S. dollar is the world\u2019s reserve currency.<\/p>\n<p>President Joe Biden has not openly endorsed MMT, but <a href=\"https:\/\/www.politico.com\/news\/2020\/04\/25\/joe-biden-green-stimulus-207848\">he\u2019s no fan of Friedman<\/a> either. Instead, he seems content to have many mostly younger congressional Democrats advocate for MMT, which provides convenient and seemingly academic reasoning for financing more federal spending without explicitly raising taxes. It has a similar political appeal that Keynesianism presented almost a century ago, and MMT is just as flawed.<\/p>\n<p>But proponents of MMT do get one thing correct \u2014 the Fed can create money to service the debt and avoid a default. But in real terms, meaning adjusting for inflation, this assertion is false. Creating money to service the debt devalues the currency. Investors then receive a lower real return on their holdings of federal debt.<\/p>\n<p>Furthermore, everyone is hurt by inflation, whether they own government bonds or not. Inflation is essentially a tax, as it robs people of their purchasing power at no fault of their own. Everyone who received a 7.5 percent raise over the last year probably thought they would be able to afford more stuff, but they were deceived. Inflation rose just as much \u2014 so there was no real raise.<\/p>\n<h2 id=\"false-claims-that-taxes-are-the-solution\">False Claims That Taxes Are the Solution<\/h2>\n<p>But MMT proponents claim that the massive budget deficits are what allow people to save money. Were it not for those deficits, they contend, people would have no cash to save. At first glance, the pandemic seemed to support that. People received transfer payments from the government and saved much of them due to uncertainty. But more recently, people\u2019s savings are being depleted as this dependency on government dries up and prices soar.<\/p>\n<p>Now that inflation is running amok, MMT adherents believe\u00a0<a href=\"https:\/\/www.washingtonexaminer.com\/restoring-america\/faith-freedom-self-reliance\/modern-monetary-theorists-have-no-answer-to-raging-inflation\" target=\"_blank\" rel=\"noreferrer noopener\">tax increases are the primary (if not only) cure<\/a>. They claim inflation is not caused by the Fed creating too much money, but by people having too much money to spend; taxation will remove that excess liquidity and stop inflation.<\/p>\n<p>However, MMT doesn\u2019t explain why it\u2019s only inflationary when people spend money, but not when the government spends it. Somehow the Fed creating money by purchasing government debt miraculously doesn\u2019t bid up prices for scarce resources. The theory sounds more like a belief than science \u2014 something that must be trusted rather than demonstrated.<\/p>\n<p>Specifically,\u00a0<a href=\"https:\/\/www.washingtonpost.com\/opinions\/the-lefts-embrace-of-modern-monetary-theory-is-a-recipe-for-disaster\/2019\/03\/04\/6ad88eec-3ea4-11e9-9361-301ffb5bd5e6_story.html\" target=\"_blank\" rel=\"noreferrer noopener\">MMT ideology<\/a>\u00a0is built on mathematical relationships between economic variables like private and public savings and debt rather than a strong theoretical construct, and breaks down quickly when analyzed with\u00a0<a href=\"https:\/\/www.mercatus.org\/publications\/monetary-theory\/how-reliable-modern-monetary-theory-guide-policy\" target=\"_blank\" rel=\"noreferrer noopener\">sound economic theory<\/a>. Moreover, these relationships seem to be used to derive a funding mechanism for their\u00a0<a href=\"https:\/\/www.fastcompany.com\/90515098\/what-if-the-federal-deficit-didnt-actually-matter-modern-monetary-theory-explained\" target=\"_blank\" rel=\"noreferrer noopener\">big-government policy goals<\/a>, such as a federal jobs guarantee, universal healthcare, and other costly initiatives.<\/p>\n<h2 id=\"how-taxation-might-stop-inflation\">How Taxation Might Stop Inflation<\/h2>\n<p>But MMT is not entirely wrong on using taxation to stop inflation. If those taxes are used to pay for deficit spending \u2014 which really should be done by\u00a0<a href=\"https:\/\/thecannononline.com\/the-u-s-needs-a-responsible-american-budget\/\" target=\"_blank\" rel=\"noreferrer noopener\">spending less<\/a> \u2014 rather than the Fed financing it, then higher taxes can lower inflation. But that is far too nuanced of an explanation for MMT, which paints in much broader brushstrokes.<\/p>\n<p>Regardless, MMT cannot dispel the hard truths of monetary policy, which is inflation comes from one place \u2014 the Fed. When the Fed creates money faster than the real economy grows, prices will rise; it\u2019s that simple.<\/p>\n<p>To alleviate the uncertainty and distortions across the economy of bad policies in Washington, there should be binding\u00a0<a href=\"https:\/\/www.texaspolicy.com\/out-of-control-congress-and-fed-need-binding-rules\/\" target=\"_blank\" rel=\"noreferrer noopener\">fiscal and monetary rules<\/a>\u00a0based on sound economics instead of ideology. This should include changing government spending by less than the growth in personal incomes and only changing the money supply to keep prices stable.<\/p>\n<p>Almost two years after President Biden declared \u201c<a href=\"https:\/\/www.politico.com\/news\/2020\/04\/25\/joe-biden-green-stimulus-207848\" target=\"_blank\" rel=\"noreferrer noopener\">Milton Friedman isn\u2019t running the show anymore<\/a>,\u201d the late economist is clearly the one with the last laugh. Perhaps next time, the president will think twice before speaking ill of the dead.<\/p>\n<hr class=\"wp-block-separator\" \/>\n<p>\n  E.J. Antoni, Ph.D., is an economist at the Texas Public Policy Foundation and a senior fellow with the Committee to Unleash Prosperity. Vance Ginn, Ph.D., is chief economist at the Texas Public Policy Foundation, and was the associate director for economic policy at the White House\u2019s Office of Management and Budget from 2019 to 2020.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Watching the screen on a gas pump while filling your vehicle\u2019s tank is liable to induce a panic attack. Paying for a used car<\/p>\n","protected":false},"author":1,"featured_media":1894041,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","fifu_image_alt":"","footnotes":""},"categories":[],"tags":[],"class_list":["post-1330791","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry"],"fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","_links":{"self":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1330791","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/comments?post=1330791"}],"version-history":[{"count":0,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1330791\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media\/1894041"}],"wp:attachment":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media?parent=1330791"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/categories?post=1330791"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/tags?post=1330791"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}