May 7, 2021

THAT ’70s SHOW: Media suddenly focused on inflation after massive spending spree in DC.

Oddly, no one’s talking about the six trillion dollars or so that Congress and the White House has spent off the books as part of the pandemic response. That’s essentially the same as printing money, and that has its own inflationary effects. But the conditions and incentives created by those massive spending bills have inflationary impacts of their own. Lawmakers are using those conditions to force an artificial increase in labor costs, which go directly to producer and consumer prices and inflation. Direct stimulus, a key part of all three relief bills, produces a “sugar high” of consumption that puts strain on supply, which results in — ta da! — price increases.

From Amity Shlaes’ recent book, Great Society: “Another expert safely out of reach of [Lyndon] Johnson, at the National Bureau of Economic Research, was Arthur Burns. [Alan] Greenspan was just one economist; Burns, who headed the NBER, was the voice of the entire economics profession, independent and proud. Back in the 1950s, he had warned that ‘the problems of inflation will return to haunt us.’ It had been Burns who back in 1960 had warned the presidential candidate Richard Nixon—correctly, as it turned out—that tight monetary policy at the Fed was slowing growth and could cost Nixon the election. Lately, Burns had been charging that Lyndon Johnson’s brand of prosperity featured serious ‘perils of inflation.’ Burns, like Greenspan, pointed to the costs of the butter, not the guns. To attribute the recent large increases in the budget, and certainly future increases, to the costs of war, Burns said, frankly, was ‘a misconception.’ The anti-poverty programs were the problem—a good share of them, as Burns told the New York Times, were ‘pure waste.’ Precisely because they were outsiders, Greenspan and Burns could speak truth to power. Johnson was trading in the Great Dollar for the Great Society, and it was a lousy trade.”

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