Of Inflation and Words of Offence

The professional political commentators were all atwitter today about a word. It was one word from a comment that new presidential candidate, Texas Governor Rick Perry, said yesterday in discussion with some likely Republican voters in Iowa. The subject was Federal Reserve Chairman Ben Bernanke and the monetary policies of the Federal Reserve Board. These are the monetary policies that affect the price of everything in the United States and the value of the dollar abroad.

This is what Governor Perry said. Read it carefully, and see if you have any difficulty figuring out what Perry’s message was:

If this guy prints more money between now and the election, I don’t know what y’all will do to them in Iowa, but we would treat him pretty ugly down in Texas . . . I mean printing more money to play politics at this particular time in American history is almost treasonous in my opinion. Because all it’s going to be doing—we’ve already tried this—all it’s going to be doing is devaluing the dollar in your pocket. And we cannot afford that. We have to learn the lessons of the past three years.

Have you figured out what he was talking about, what his message was? This is not a trick question. His message seemed clear and obvious to me. That message was not what the professional commentators were largely talking about. I guess they missed it. As they interviewed each other, pretending that they were somehow reporting news, they zeroed in on Governor Perry’s use of the word “treasonous”. Was Governor Perry accusing the Federal Reserve Board Chairman of “treason” they all asked?

Having been interviewed by the TV talking heads on numerous occasions, I could not help imagining myself responding to their question. Of course they did not ask me, or anyone like me. They were busy interviewing each other.

But if I had been asked what seems to be the important question of the day—or, like Sesame Street puppets, the word of the day—I suspect I might have answered something like this:

“Are you asking me about a word or about the principle that Governor Perry was emphasizing? My religion teaches me not to make a man a transgressor for a word (see Isaiah 29:20, 21), but it is the principle, his message that we should consider if we want to evaluate his candidacy for President. What principles would likely guide him while in office? That is what we need to know if we want to have an intelligent conversation about who should be president.”

I would then add that it seemed to me that Governor Perry’s message was very clear:

Inflation is a bad policy, an especially bad policy at this time of a weak economy. We have tried it before, and it hurts the nation and the people. It would be particularly wrong for the independent Federal Reserve to choose inflation for political purposes.

That would be my recitation of Governor Perry’s message. I think I got it right. And I think that Governor Perry got it right.

Inflation is terrible. It breaks the promise embedded in money and makes it a lie. Remember that money is just a certificate of a promise between two people: I will give you my labor or goods or service in exchange for a promise that I can obtain something of equal value later. That becomes a lie if inflation means that when I redeem that promise I get something that government has reduced in value by depreciating the money that carries that promise. I provide $20 of labor and only get $18 of value in return. That is what inflation means. It corrupts that value of our goods and services. Even worse it corrupts the value of the promises we make and receive.

Inflation is particularly hard on retired people. These are people who set their money aside for 20, 30, 40, 50 years or more so that they could live off of it in their old age. Inflation cheats them, giving them only a fraction—sometimes only a small fraction—of the value that they set aside and hoped and relied upon for the rest of their lives. They lived a lower standard of living so that they could save for the future, only to find inflation make that future poorer for them. That is a life-time theft, when it is all too late to be reclaimed.

So if you want, go ahead and choose whatever word you want to describe inflation and its effects, especially if that inflation were inflicted on the nation for short-term political gain. Choose your word if that political inflation were to be inflicted by those public servants—the Federal Reserve Board—who took on the legal duty and responsibility to maintain stable prices, to fight inflation.

Whichever word you may choose, the policy of national inflation is wrong. Even if governments throughout history and into the modern era frequently resort to inflation when their national debt becomes too heavy to carry, it is still wrong. It is destructive and undermines the economy and robs the people who rely upon honest money.

Governor Perry was right to say, in very clear language, that it would be a major mistake for the Federal Reserve to choose that road, that the Federal Reserve must guard its independence from political pressure and hold to its legal mandate to fight inflation, not promote it.

If you must choose a word to describe it, go ahead. To quote Gilbert and Sullivan,

I conceive you may use
Any language you choose
To indulge in without impropriety.
(Iolanthe)