There’s a story on Bloomberg today about the bird flu epidemic driving inflation in the price of eggs. If you’re interested in eggs, it’s certainly worth reading. But this post isn’t about eggs or the poultry industry.
As I read this story, I noticed that there just isn’t any mention of the Fed. And of course there isn’t because it would be absurd to assume that having too much money in circulation has anything to do with the rising price of eggs when we already know that the price of eggs is rising because supply is constrained and will continue to be constrained for at least 18 mos. due to Bird Flu killing the hens.
Just suppose though that egg products have a much broader range of uses, like transportation fuel and major industrial inputs, and the presence of the Bird Flu epidemic was top secret, and the price of egg products started to rise. And the rise in the price of eggs started feeding into price increases for nearly everything else, driving the up the headline CPI inflation index, and probably core too.
In this scenario, I think it would be likely to hear and read about screams of monetary wrongdoing and demands for rate hikes because we simply have too much demand for, and even bubbles in, eggs. All of a sudden, for the lack of any other explanation, the absurd becomes not only plausible, but a totally and completely undeniable fact – inflation, anywhere for any reason, has a monetary source – we’re too big, and too hungry for resources, and we simply make too many demands on the hens that are left. So, the only reasonable thing to do would be to put several millions of people out of work to reduce demand and subsequently reduce the price of eggs.
Silly, isn’t it. I can just imagine the roars of laughter across cyberspace as my post is read and digested. Of course eggs aren’t jet fuel, or diesel fuel, or anything of the like. We don’t HAVE TO buy eggs and the only time we will care is at breakfast, and we don’t have to have cake.
Ok. So just imagine a cat 5 hurricane in the Gulf of Mexico taking out every oil rig and refinery that is there. That actually happened in late 2007. And we did hear screams about fuel prices and about central bankers beating the drums of war against inflation that continued long after oil prices crashed. Silly. Isn’t it.
What is even sillier, is basing the monetary regime on inflation because that codifies reasoning from a price change into policy formation. Things like this happen on the supply side with enough frequency, confusing the inflation indexes, and subsequently, the central bankers. In IT, it doesn’t matter why prices rise. And of course almost nobody believes in some hidden societal benefit to millions of people being put out of work because of bird flu, and probably not even for a hurricane either. But it happens regularly in an IT regime – that’s how it works to stabilize upward pressure on prices – reducing demand.
I think IT stinks. And it’s so completely unnecessary to have such a sadistic and narcissistic approach to monetary policy when there are plausible alternatives, like NGDP level targeting that would deliver comparable long term results without all of the nasty and immoral tradeoffs. All we have to do is recognize the injustice of IT for what it is and insist that a stop be put to it. Stop buying into the anti-inflation propaganda and hype, and write letters to your Congress critter demanding for this kind of monetary nonsense to stop – and sign it with, “NEVER reason from a price change!”