Posted by
john on Tuesday, December 09, 2008 12:25:54 PM
"The Mirage of Inflation"
"The more knowing inflationists recognize that any substantial increase in the quantity of money will reduce the purchasing power of each additional monetary unit - in other words, that it will lead to an increase in commodity prices. But this does not disturb them. On the contrary, it is precisely why they want the inflation. Some of them argue that this result will improve the position of poor debtors (the U.S. government?) as compared with rich creditors (owners of government debt?). Others think it will stimulate exports and discourage imports (a China strategy of the Bush Administration?). Still others think it is an essential measure to cure a depression, to "start industry going again,"(bailouts?) and to achieve "full employment (infrastructure spending?)...
"So inflation... may indeed bring benefits for a short time to favored groups, but only at the expense of others... It leads to the overexpansion of some industries at the expense of others. This involves a misapplication and waste of capital (throwing money at GM). When the inflation collapes, or is brought to a halt, the misdirected capital investment - whether in the form of machines, factories, or office buildings - cannot yield an adequate return and loses the greater part of its value. Nor is it possible to bring inflation to a smooth and gentle stop, and so avert a subsequent depression (1981-1982)...
"Yet the ardor for inflation never dies... Inflation is the auto-suggestion, the hypnotism, the anesthetic, that has dulled the pain of the operation. It is the opium of the people. And this is precisely its political function. It is because inflation confuses everything that it is so consistently resorted to by our modern "planned economy" governments (Washington to take over Detroit, the housing industry, etc.)...
"Like every other tax, inflation acts to determine the individual and business policies we are all forced to follow (hence Jim Cramer doesn't care - he'll just profit from the game while it lasts, and tough luck to anyone not as smart as he is). It discourages all prudence and thrift... It often makes it more profitable to speculate than to produce (housing bubble anyone?)... Its inexcusable injustices drive men toward desperate remedies (Obama). It plants the seeds of fascism and communism (not a problem for Obama?). It leads men to demand totalitarian controls (wage and price controls, nationalized health care). It ends invariably in bitter disillusion and collapse (unless a Ronald Reagan appears)."
Henry Hazlitt, "Economics in One Lesson"