(Drivebycuriosity) - Inflation is collapsing. But Elizabeth Warren & Bernie Sanders still claim that inflation is caused by corporate greet and the media coined the term "greedflation" (twitter thehill). They get support from 2 academics from Massachusetts: Isabella M. Weber & Evan Wasner published a paper called "Sellers’ Inflation, Profits and Conflict" (umass ). Sellers`! What about buyers`?
The authors asked "Why can Large Firms Hike Prices in an Emergency?" and answer: Large firms with market power have the "ability to hike prices". Weber & Wasner limit their thesis to 2 situations: Emergencies, like COVID-19, and to firms which "are price makers, but they only engage in price hikes if they expect their competitors to do the same".
Their arguments are mainly based on Marxist literature from the 20th century. They quote for instance the Polish Marxian economist Michael Kalecki, who presumed a "tacit agreement among firms of an industry to ´protect` profits, and consequently to increase prices" ( umass page 5 wikipedia).
Helicopter Money
I have already a problem with the term "market power". Can Coca Cola - one of Weber´s culprits - really force me to buy their product? I avoided it for decades. And in 2009 the "powerful" General Motors (another one of Weber`s culprits) went bankrupt.
I can image being on a station on the moon where just one supplier of oxygen exists, a monopolist. When I want to breath I have to purchase oxygen from him for his price. "Market power" is a term made up by lefties who despise private enterprise and who have no idea how an economy functions.
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But the Weber/Wasner paper has a much more severe fallacy. How could these academics overlook that in 2020/21 the US government - supported by massive bond purchases by the Federal Reserve - flooded the US economy with trillions of dollars, giving the Americans (buyers) enormous buying power. Friedman called this action prophetically helicopter money.
As a result in 2020 & 2021 the US money supply M2, the engine of the inflation, jumped 40%. The money deluge met a constraint supply of goods & services, partly because of COVID-19 which disturbed the supply chains. "Inflation is caused by too much money chasing too few goods and services", notice the economists at fisherinvestments. "It is no surprise that prices increased so much", comments Tyler Cowen, Professor at George Mason University (marginalrevolution ).
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Causal Connection
The causal connection between money and inflation is known since the 16th century at least. Nicolaus Copernicus described already in the year 1522 how "too much money" causes inflation. Copernicus` "quantity theory of money" is based on observations:
Early in the 16th century the Spaniards conquered today`s Latin America and looted the silver stocks. They send the precious metal to Europe where is was printed into coins and used as money.
As a result the European money volume jumped. The flood of money raised suddenly the demand for scarce goods & services and caused a jump of the price level. I am convinced that the flood of monetary silver hiked the profits of many weavers, potters, bathers & traders in the 16th century.
Elaborated studies by Milton Friedman, Karl Brunner, Allan Meltzer and many other economists (known as Monetarists) described already in the 1960s how and why the inflation rate follows the growth rate of money with a time lag (causal connection).
The evidence (charts above) shows that inflation is following the monetary wave from 2020/21, confirming Copernicus & the monetarists from the 20th century.
Excuse For Government Intervention
Apparently Weber/Wasner ignore history as much as they neglect basic economics. Instead the authors try to support their outdated thesis with an impressive amount of statistics & graphics. Germans call this Fleissarbeit (diligent piece of work). I suppose the statistics are just a red herring to distract from the biased ideological & anti-business approach of the paper.
The references display an exposing list of Marxists and other left-wing authors, including Labor party advisor Nicolas Kaldor, Polish Marxian economist Michael Kalecki, central planning advocate A.P. Lerner, John Kenneth Galbraith & Paul Krugman. The authors ignored Milton Friedman and Brunner & Meltzer, the leading monetarists.
Unfortunately the paper can be used as an excuse for more government intervention & regulation and might support FTC chair Lina Khan`s crusade against free enterprise (driveby ). Maybe this is the purpose of the paper.
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