A Benjamin Cole post
That the United States economy today is far less inflation-prone than the 1970s is hardly in dispute. But for some reason—ideology, or generational perhaps—we have now a Fed that is monomaniacally obsessed with inflation, and thus overly timid of promoting robust growth. Or even of trying.
Since the 1970s, we have seen international trade balloon in the U.S., with the attendant global supply lines. We have seen the destruction of Big Labor, Big Auto, Big Steel, Big Aluminum, big anything. Who has market power today?
Meanwhile, retailing has been transformed by the incredible global sourcing and efficient distribution of a Wal-Mart, Target or the ubiquitous dollar stores—not to mention now-robust informal retail markets courtesy of Craigslist and the Internet.
Moreover, since the 1970s whole industries, such as transportation or finance, have had price shackles thrown off. Remember regulated airline, train and trucking fares? How about fixed stockbroker commissions? Passbook rates?
Top federal marginal tax rates have been cut from 90% in the 1960s to under 40% today—capital is abundant, or even glutted. No good idea in business today goes unfunded. This is different from a couple decades back, when many complained that one “had to have connections” to get bank or VC funding.
The proof is in the pudding. The last time the U.S. saw double-digit inflation was in the 1980s, and early at that. The last time the U.S. had a reported annual CPI rate above even briefly above 5% was…twenty-five years ago.
Today, if there is demand for something in the U.S—cars, say—it is not only the Big 3 who answer the call. It is Honda, Toyota, Mazda, Nissan, Hyundai, Kia, Volkswagen, BMW, a few others and what is left of the Big 3, those being GM, Ford and Fiat-Chrysler.
The Fed and the inflation-fixated are fighting the last war. The game now is to keep demand growing and robust. Prices will take care of themselves. That is called competition, and we have never had so much competition before in the U.S.
Print more money.