The Wallstreet Journal on the Fed’s new media campaign to spin its inflationary policies:
The former Goldman Sachs chief economist gave a speech explaining the economy’s progress and the Fed’s successes, but come question time the main thing the crowd wanted to know was why they’re paying so much more for food and gas. Keep in mind the Fed doesn’t think food and gas prices matter to its policy calculations because they aren’t part of “core” inflation.
So Mr. Dudley tried to explain that other prices are falling. “Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful,” he said. “You have to look at the prices of all things.”
Here’s the thing: The iPad was always going to provide more bang for the buck regardless of what the Fed did or didn’t do. The cost drop for the iPad is due to the rapid technological change in the computer field. Moreover, without the Fed destroying the value of the money in people’s pockets, the cost to performance ratio change for the iPad would have been even more dramatic.
How can the Fed claim they aren’t causing problems by pointing to a factor over which they have no influence. Shouldn’t we hold the Fed accountable for the factors they do influence?
Improving technology automatically improves the standard of living but that has nothing to do with inflation. Yes, it’s great that you can buy a much more powerful iPad2 for the same price as an iPad1 but it’s not so great if you can’t afford even the price of an iPad1 now because your food and gas prices have increased to absorb all the excess income you had budgeted to get a new iPad!
Inflation is the most dangerous of all financial strategies. It destroys real wealth and utterly disrupts the price mechanisms that drives the entire economy. To the extent it works, it does so by transferring vast amounts of wealth from ordinary people to those who get the inflated currency first. In this case, it is the large banks that the Fed are trying to re-inflate after the housing bust sucked all the capital out of them.
Even if is necessary, and I’m not saying it is, the Fed should have at least have the good grace to explain things straight to us instead of trying to convince us that our rapidly decreasing purchasing power is nothing to worry about. Inflation is just a form of taxation. They are taking money from us to prop up our financial institution. That taking will leave us all with a lower standard of living than we would have had otherwise. They should be honest about that.
Just because Steve Jobs is very good at his job doesn’t mean the Fed doesn’t suck at theirs.