Steve Forbes - Inflation: What It Is, Why Its Bad, and How to Fix It

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WHAT IT IS, WHY ITS BAD, AND HOW TO FIX IT

2022 by Steve Forbes, Nathan Lewis, and Elizabeth Ames

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Encounter Books, 900 Broadway, Suite 601, New York, New York, 10003.

First American edition published in 2022 by Encounter Books, an activity of Encounter for Culture and Education, Inc., a nonprofit, tax-exempt corporation.

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Image on p. 122 is from Wikimedia Commons, DonkeyHotey, licensed under CC by 2.0. It was originally adapted from the Statue of Liberty Coin designed by Don Everhart from the Presidential Coin Series at the US Mint and converted to grayscale for the purposes of this book. https://creativecommons.org/licenses/by/2.0/deed.en

FIRST AMERICAN EDITION

LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA

Names: Forbes, Steve, 1947-author. | Lewis, Nathan K., 1971-author. | Ames, Elizabeth, 1954-author.

Title: Inflation: what it is, why its bad, and how to fix it / by Steve Forbes, Nathan Lewis, and Elizabeth Ames.

Description: New York, NY : Encounter Books, [2022]

Includes bibliographical references and index.

Identifiers: LCCN 2021056768 (print) | LCCN 2021056769 (ebook)

ISBN 9781641772433 (hardcover) | ISBN 9781641772440 (ebook)

Subjects: LCSH: Inflation (Finance) | Money.

Classification: LCC HG229 .F644 2022 (print) | LCC HG229 (ebook) | DDC 332.4/1dc23/eng/20211209

LC record available at https://lccn.loc.gov/2021056768

LC ebook record available at https://lccn.loc.gov/2021056769

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This book is dedicated to people around the world who have endured the hardships of inflation, and who want something better.

INFLATION. The headlines are everywhere: Fears of High Inflation Getting Worse?; Consumer Prices Jump; Inflation Marks Quickest Pace in More Than a Decade.

The front page of the New York Post proclaims that producer prices have skyrocketed and inflation is the worst it has been in years.

A shopper at a Long Island supermarket complains that his grocery bill has doubled in just two months. Hes now buying only essentials, skipping pricier items like meat and fish.

A Virginia car dealer marvels that prices are moving up so fast that some common, used cars are selling at more than their original sticker price when they were new.

A realtor in South Carolina complains that the high cost of lumber is impeding construction of new homes, driving housing prices out of sight.

Bloomberg News reports that customers of a bike store in California are aghast to discover that the price of a top-of-the-line mountain bike jumped 10 percent in less than six months to nearly $4,800. The price tag on future models is expected to go still higher.

Almost daily, people are shocked by media reports of double-digit increases in the price of food, gas, automobiles, and other essentials. Adding to public anxiety is an ever-mounting level of government spending, causing federal debt to now exceed the size of the entire US economy. Much of this massive obligation is being financed by the Federal Reserve, the US central bank, through Treasury bonds that it pays for with money it created out of thin air.

This aggressive spending, combined with the Feds money creation, has unleashed an ocean of dollars into the economy. Between December 2019 and mid-2021, the money supply exploded by more than 35 percent, exceeding an astonishing $20 trillion.

Alarms have been sounding about the potential of so much money printing to create a dangerous inflation. Among the first to voice concerns was Larry Summers, the Keynesian economist who served as treasury secretary during the Clinton administration, and later as chief economic advisor to President Obama. He openly worried that were taking very substantial risks on the inflation side. Summers went on to warn: We are printing money, we are creating government bonds, we are borrowing on unprecedented scales. Those are things that surely create more of a risk of a sharp dollar decline than we had before. And sharp dollar declines are much more likely to translate themselves into inflation than they were historically.

Summers and others fear a replay of the Great Inflation of the 1970s, when the US endured a decade of double-digit price increases combined with a stagnant economy. The word stagflationused during that era to describe the malaisehas made a comeback in public discussions. Some observers even raise the specter of a hyperinflation comparable to the historic crisis that ravaged Weimar Germany in the early 1920s and the maelstroms currently tearing apart Venezuela and other nations today.

However, officials at the Federal Reserve initially dismissed such warnings. They insisted the price increases were transitorythe effect of COVID supply-chain disruptions. Yet, by the end of the year, their tune began to change. With inflation blowing past 6 percent, Federal Reserve Chair Jerome Powell conceded that it was likely a good time to retire that word.

President Joe Biden, for his part, has shrugged off concerns about the price hikes and all that government spending. Echoing an increasingly popular, far-left view known as Modern Monetary Theory, he has insisted that government spending actually suppresses inflation. How does it do this? Biden explained in a 2021 White House speech that it breaks up the bottlenecks in our economy.

The president raised eyebrows even among Keynesian economists (ordinarily proponents of central-bank monetary stimulus) when he went on to add that massive spending on infrastructure