Definition and cause
Inflation is defined in the excerpts as a reduction in the purchasing power of the money unit — in the United States, a reduction in the dollar’s purchasing power — so that it takes more dollars to buy the same thing than it took in the past Liz Warren’s Crusade against “Big Grocery (2022). Don Boudreaux states that inflation is caused by an increase of purchasing power beyond the increase in the amount of things to buy, and that this nearly always happens when government injects more purchasing power into the economy. He describes the preceding two years as an unprecedented injection of purchasing power combined with a government-engineered obstruction of production, reducing the goods and services reaching market while increasing purchasing power in the hands of ordinary people, with a rise in prices as the inevitable result.
Bob Zadek frames the question in similar terms, noting that most people understand inflation only as things costing more, and asking what causes it and why it adversely affects people, given that if everything goes up and wages go up proportionally the effect ought to be revenue-neutral Liz Warren’s Crusade against “Big Grocery (2022). Boudreaux answers that this is not how inflation works in the real world: purchasing power is injected at particular points, those who first spend the money — often the government or the people who first get bank loans — buy at low prices, and prices rise in a staggered fashion while wages usually lag the rise in the overall prices of goods and services. For a while, workers find their wages rising by less than the prices of what they buy, which Boudreaux describes as a reduction in their real income.
Boudreaux also argues that inflation causes uncertainty: entrepreneurs read relative price movements as signals about what consumers want, but when a price rises because of the way inflation causes prices to rise at different rates, they cannot tell whether consumers want more of the good or whether inflation is responsible. That uncertainty, he says, stymies entrepreneurial investment and creativity and reduces willingness to take real risks. He cites post-World War I Germany as an instance of hyperinflation, and says that the higher inflation gets and the faster its rate runs, the worse the damage, though it always causes some damage Liz Warren’s Crusade against “Big Grocery (2022).
Inflation as a relative concept
In a May 2020 episode, Bob Zadek offers a distinct view of inflation as necessarily relative The Future of Lending after COVID-19 (2020). He defines inflation as the value of a dollar — its purchasing power — declining, and says he has no doubt there will be some inflation, calling it almost inevitable when so much debt and so much money are washing through the economy from the debt. He then argues that if a dollar is going to decline, it has to decline relative to another currency, and that there is no such concept as the buying power of a dollar of all currencies inflating at the same degree, because inflation is always a relative concept.
Zadek reasons that if all the world’s currencies are inflated, things will cost more in absolute dollars — what cost $2,000 will cost $2,300 — but since inflation is on the whole in all the trading economies, salaries and income will have to go up commensurate with the cost of goods. In his account the only losers in inflationary times are those whose investment is cash, because $100 will buy less, while wealth tied up in home values, securities or commodities will appreciate at the same rate or depreciate at a lower rate. He concludes that since the phenomenon is worldwide and not confined to the United States, the negative effects will be noticeable only in the sense that things cost more while incomes rise, and that the relative buying power of a dollar will be the same.
The “monetary phenomenon” claim and the blame question
The January 2022 episode returns to the definition and attributes the formulation to Milton Friedman, described by Boudreaux as the most famous monetary economist who ever lived Liz Warren’s Crusade against “Big Grocery (2022). Boudreaux quotes Friedman’s statement that inflation is always and everywhere a monetary phenomenon, meaning that steadily rising prices can be traced to the money supply and purchasing power rising faster than the output of goods and services. Bob Zadek separately recalls Friedman calling inflation a printing press problem — too much money being printed, with government running the printing press — and characterizes it as a government-induced problem.
Much of the episode is directed at Elizabeth Warren, whom Boudreaux says blamed the rise in grocery prices on greed and on the alleged monopolization of retail grocery rather than on the government’s injection of purchasing power. Boudreaux rejects the greed explanation on the ground that people spend dollars, not greed units, and that if there are no more dollars to spend, prices cannot rise; he lists Amazon, Walmart, Target, Kroger, Trader Joe’s and Whole Foods among the options for buying groceries as evidence of competition. He says Warren voted in favor of prolific spending programs and that the Federal Reserve has been injecting spending power into the economy, and that all sensible economists knew a few years ago that inflation would result from the increase in spending power combined with the obstruction of the supply chains. He adds that he is surprised the inflation is not even higher.
Zadek asks where the crime or evil is in grocery stores earning a profit, notes that their profit margins are low, and says grocery prices have never been lower in history. Boudreaux agrees in real terms, saying that the amount of time ordinary Americans must work to buy a pound of potatoes, broccoli, cans of green beans or lettuce had for decades leading up to COVID increasingly shrunk, meaning those items became much more affordable, while nominal prices are today rising because of inflation. To the extent prices rise faster than wages, he says, there is a short-term increase in the real cost Americans pay for groceries, but that problem is caused neither by greed nor by monopolization, of which he says Warren has presented no evidence.
Price controls
The same episode turns to wage and price controls, which Zadek introduces as the governmental fallback now that inflation has been caused, and which he calls an insidious cure Liz Warren’s Crusade against “Big Grocery (2022). Boudreaux explains price controls as government prohibiting sellers from raising prices, or restricting how high they can raise them, with fines or jail for exceeding the limit. He argues that government can with enough force prevent people from raising prices but that this does not control inflation, comparing it to preventing a thermometer’s mercury from rising while the heater continues pumping heat into a room, or to a mayor ordering newspapers to report a false murder count.
Boudreaux calls price controls a command by government to every seller to lie to the economy about the real value of what they have to sell, and says they do the opposite of controlling inflation by preventing the truth about price pressure from getting out. He cites August 1971, when Richard Nixon imposed a nationwide wage-price freeze on all prices and wages in an attempt to control inflation, calling it a terrific failure and saying Nixon himself understood it would not work and did it for political advantage. He says wage-price controls have never worked for any of the things they have been attempted to be used to do, and compares economists who propose them to people with physics degrees proclaiming the possibility of a perpetual motion machine.
Zadek argues that price is information that buyers and sellers use to allocate resources and time, and offers the example of a used car worth $25,000 on a functioning market that government controls would require be sold for $10,000: the owner would either refuse to sell, denying himself the money and a buyer the car, or the deal would go forward in an underground garage — the black market, the secret economy. He notes that the White House as recently as the previous month had expressed some appeal for wage and price controls, and that Jen Psaki, in a December press conference complaining about meat prices, indicated the White House and the Department of Agriculture were looking at wage and price controls to stem what Zadek quotes as corporate greed. Boudreaux adds that he thinks enough Americans remember the 1970s, wage-price controls and energy price caps to understand that what is being peddled in Washington is nonsense, and recalls that one of Ronald Reagan’s first official acts as president in January 1981 was to eliminate price controls on energy, after which energy prices including gasoline spiked and then went right back down because sellers returned to the market.
Across episodes: Venezuela
The February 2019 episode on Venezuela raises inflation only as part of a question Utopia Unmasked (2019). Bob Zadek asks how Venezuela, which he believes has the largest oil reserves of any country on earth, has a population starving to death with inflation rampant, and why it is not a Qatar located in Central America with gleaming cities and wealth abounding. The excerpt does not answer the question or connect it to the definitional and policy discussion in the later episodes, and the excerpts show no development of the Venezuela thread.
What the sources do not cover
The excerpts do not state what became of the inflation discussed in the 2022 episode, nor do they report any figures for the rate of inflation in the United States. They do not describe the Federal Reserve’s actions beyond Boudreaux’s statement that it has been injecting spending power into the economy, and they do not state the outcome of any antitrust action against grocery retailers. The Venezuela excerpt ends with Zadek’s question and supplies no account of Venezuelan monetary policy.