4/4/23, 10:19 Current Inflation NOT Caused by Government Spending Says Nobel Prize Winning Economist | by Mitchell Peterson

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Current Inflation NOT Caused by Government

Spending Says Nobel Prize Winning Economist
Joseph Stiglitz and Ira Regmi debunk mainstream disinformation in
paper with massive ramifications

Image by Gerd Altmann from Pixabay

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4/4/23, 10:19 Current Inflation NOT Caused by Government Spending Says Nobel Prize Winning Economist | by Mitchell Peterson | Medium

If I had a dollar for every time I heard someone bemoan how government
overspending on ‘helicopter money’ to the poors has caused the current
inflation, I would have pockets full of USD. It wouldn’t be enough to pick up Gucci
loafers or anything, but it’d be more than a sufficient sum to spend a weekend in a
Czech pub crushing pilsners, slivovice, and deep-fried goodness.

I hear shallow economic myths repeated by everyone and their mother on a weekly
basis. They’re everywhere and echoed so often that many have become second
nature. Kind-hearted well-intentioned people, who are working their asses off for
every paycheck, parrot fallacies like workers’ wages being too high or poor people
‘getting too much money’ has caused inflation over and over and over again.

Most repeated narratives about the economy, wages, taxes, government debt, and
inflation are a spectrum from half-truths to blatant lies.

Mainstream media and the ruling class propagate these economic myths and make
them ‘common sense orthodoxy’ to keep working people misinformed, down, and
desperate.

Don’t take my word for it.

Check out the recent paper by economists Joseph Stiglitz and Ira Regmi. They’re
both too academic and neutral to use politically charged language like that part
about the ruling class. Still, their economic analysis on inflation completely destroys
everything one hears from most politicians, the media, or cartoon-evil characters like
Larry Summers — who get way too much television time and lines in the nation’s
most important papers.

But once one looks at the Stiglitz-Regmi numbers and reads their analysis, one can’t
help but wonder why the opposite narrative is the one perpetuated far and wide.

These two academics have the receipts, showing the inflation we’re seeing is NOT
simply regular people having and spending too much money.

But rather than cold logical mathematicians, most

economists are much closer to politicians, or the
best analogy is the religious wise men a king would

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bring in when he was about to do something horrible

but needed justification from God.

W hen speaking about mainstream economics, it is important to be reminded

that it is not usually an exact science, especially when it comes to future
projections. They want us to believe that they’re precisely and accurately studying
processes as natural and consistent as physics. But rather than cold logical
mathematicians, most economists are much closer to politicians, or the best analogy
is the religious wise men a king would bring in when he was about to do something
horrible but needed justification from God.

The seer would do their thing, eating a bucket of psilocybin mushrooms or throwing
some sticks onto the floor to analyze, and then they would tell the king what he
wanted to hear, “the Gods are on your side in your plan that will surely destroy the
lives of countless peasants.”

Replace ‘Gods’ with ‘selective economic data’ and one sees the role of the modern
economist.

They’re usually politicians masquerading as scientists who hide their horrific and
inhumane ideology behind magic numbers.

That’s not to say they’re all bad or that economic study is useless. It’s important to
know levels of production, demand, macroeconomic trends, etc. But too many in the
field carry presuppositions around eternal growth, ignoring the distribution of gains
or negative externalities, worshiping at the grail of GDP figures, etc.

Too many economists are also way off base when speaking about inflation. It is so
damn important because by misdiagnosing the problem, the proposed solutions are
limited and horrifically misguided.

Here’s what Stiglitz and Regmi say about our current inflation problem.

Market concentration also gets criminally-low levels

of attention, because it has “provided a prime
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opportunity for a greater exercise of that market

power.” In other words, there’s price gouging across
the board.

T he simple and over-used definition of inflation is ‘too much money chasing too
few goods.’ When demand is high and/or supply is low, prices rise. Multiply the
price increase phenomenon across the economy, and we call it inflation.

But, for whatever reason, we’re taught to only focus on the demand side of that
equation.

We hear talk of ‘wage-price spirals’ and ‘excess government spending,’ and reading
the financial press, watching any news, or listening to 99.99% of politicians, one gets
the impression that the government gave each citizen one zillion dollars to go out
and spend on truffle-filled breakfast bagel sandwiches, top of the line used cars,
whirlpool washer-dryer set-ups, jet skis, and brand new kitchen renovations, which
created too much demand, overheated the economy, and led to the inflation spike.

But why is there so little attention paid to supply?

Despite what the talking heads repeat ad nauseam, these two highly respected
economists show how our current inflation problem is mostly stemming from the
supply side of the economic equation.

Our analysis concludes that today’s inflation is largely driven by supply shocks and
sectoral demand shifts, not by excess aggregate demand…We look at both the
aggregate and sectoral-level data, and show, notably, that real personal
consumption has largely been below trend… Breaking down inflation by sector
reveals that it is tied to the obvious shocks and supply chain interruptions the
economy has experienced, from high food and energy prices to the shortage of
microchips for automobiles…Another important factor is the increase in market
concentration, which has generated greater market power; the current
circumstances have provided a prime opportunity for a greater exercise of that
market power.

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That bit about consumption is extremely important in showing Americans aren’t

spending their way into an inflationary spiral with huge salary increases and free
government cash. Their consumption is down.

The paper shows that in some sectors spending has contributed to inflation but due
to “the large pandemic-induced shifts in demand, such as those associated with
housing” and not over-simplified and always demonized government spending or
peasants making it rain.

The pandemic shifted demand but also caused supply chain disruptions that
reduced or limited supply, leading to higher prices. That is not a ‘poor people having
too much money’ problem.

The war in Ukraine and speculation on futures markets have caused massive price
increases in basics like energy and grains. Higher energy costs ripple through an
economy and cause price increases everywhere. That is not a ‘poor people getting
too many helicopter handouts’ problem.

Market concentration also gets criminally-low levels of attention, because it has

“provided a prime opportunity for a greater exercise of that market power.” In other
words, there’s price gouging across the board.

We know and have known that corporations are jacking up prices just because they
can and then turning around and blaming inflation. Costs are the same but profits
MARGINS are at all-time highs in many sectors and profits, in general, are breaking
records.

Why is that not a conversation on CNN all day every day?

Somehow braindead pundits can say with a straight face, “all the free money the
government gave to lazy poor people has caused an inflation crisis… Anyways, Exxon
and Chevron just recorded record profits and brought in $100,000,000,000 in 2022.”
And they’re too ideologically myopic and dense to make the connection.

Everyone raising prices by ten percent to take advantage of the situation and milk
more from customers adds to inflation. One more time, that is not a ‘poor people
having too high of wages’ problem.

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Because we are told a lie about what is causing the current bump in inflation, the
solution we’re being fed is also entirely off-base but predictable.

By misdiagnosing the problem, mainstream

economists, media, and politicians are calling for a
“cure worse than the disease.”

S tern-faced shamanic mainstream economists get on TV and flatly say the

‘magic numbers tell us’ we have to take food out of the mouths of poor
children in order to reduce inflation, rather than take on entrenched corporate power,
price gouging, market concentration, or fix the supply chain issues.

The solution is to induce a recession through interest rate hikes. People like Larry
Summers are literally calling for millions to lose their jobs in order to manage
inflation. Mainstream economists say we need higher unemployment and wage
reduction for a year or two, again, only focusing on the demand side of the equation.

Their theory is that after eighteen months of starving the people, corporate profits
will have dipped, and they’ll then be forced to lower prices. Prices coming down
means lowering inflation.

Think about that for a second. The goal is to reduce prices. So rather than increase
supply or directly go to corporations that are making tens of billions in excess profits,
the plan is to smash demand by destroying the lives of the working class, which will
eventually get firms to lower prices to a level the desperate peasants can afford.

That’s the approach many economists are arguing for and the Federal Reserve will
take. It is madness.

Stiglitz and Regmi argue against it, stating:

Monetary policy, then, is too blunt an instrument because it will greatly reduce
inflation only at the cost of unnecessarily high unemployment, with severe adverse
distributive consequences… Most importantly, such increases in interest rates will
not substantially lower inflation unless they induce a major contraction in the

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economy, which is a cure worse than the disease. An economic downturn like that is
likely to have long-lasting adverse effects, and the most marginalized in society will
bear the brunt. Volatile energy and food prices are largely internationally driven and
not under the control of the Federal Reserve. The recent aggressive hikes have not
remedied these price increases and are unlikely to do so in the future.

By misdiagnosing the problem, mainstream economists, media, and politicians are

calling for a “cure worse than the disease.” Again, one has to wonder why the story of
inflation is always and forever only focused on demand.

Rather than address sectoral supply-chain bottlenecks — as Stiglitz and Regmi

recommend — institute a windfall tax on excess profits, address market
concentration through anti-trust enforcement, or even freaking nationalize the oil
and energy companies, as some call for, the plan is to create a recession and smash
demand aka make sure workers don’t have money to spend for a few years.

It’s the same class warfare of old.

The most vulnerable never feel the full benefits of the upswings and are always
forced to bear the brunt of the downturns.

The cycle has to stop.

And it starts with debunking voodoo economics.

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Nobel Prize-winning economist Joseph Stiglitz and his partner Ira Regmi did their
part by writing this excellent paper that destroys mainstream narratives surrounding
the current inflation problem.

Our job is to share it far and wide and not buy the bullsh*t.

Economics Politics News Inflation Science

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