Government Spending Does NOT Cause Inflation

Sep 29, 2023 | Uncategorized

Have I Lost My Mind?

Everyone knows that government spending causes inflation, right? Printing press goes whirrr and stuff.  As a reformed Friedmanite, I’d like to challenge your thinking on this. What evidence do you have to prove this is true? What evidence exists to disprove it?

Well it turns out there is limited evidence to prove the idea that government spending causes inflation and a lot of evidence to suggest otherwise. Does this mean government spending can’t cause inflation? Nope. But it does mean inflation is caused by other things than simply saying “too much government spending.” 

In fact, I argue that in peace time inflation is always and everywhere an energy phenomenon. High energy prices = high inflation.  War, of course, is horrifically inflationary because of the scarcity it creates. Don’t go to war, produce abundant energy and I can almost guarantee you’ll have low inflation.

I talked about this in an interview I did yesterday with an interesting fellow named Richard Vague.  You can see the video here. I’d highly suggest you buy Richard’s book too, “The Paradox of Debt.”  I just bought it myself and am very interested in giving this a thorough read.  (I first need to finish Thomas Sowell’s “Black Rednecks and White Liberals book which I’m thoroughly enjoying right now. BTW, given we are in a time when Trudeau and Zelensky have respect for Nazi’s and hatred of Russia, a GREAT book to read is Alan Bullock’s “Hitler and Stalin – Parallel Lives” which proves, beyond any doubt, that Nazi’s and Commies are one in the same. Not a dime’s worth of difference between the two. I read this many moons ago and it blew me away.)

Anyway, going back to inflation.  If you’re still of the thought process that “printing press goes whirrr” causing inflation, you’ve got some serious work to do to prove that. Yes, I’ve read “A Monetary History of the US” by Friedman and Anna Schwartz.  Yes, I’ve read “The Great Contraction” too.  I’ve read a million things about various bouts of inflation and depression. Murray Rothbard, James Grant, Henry Hazlitt, to name just a few. Hell even ole Helicopter Ben Bernanke himself. 

But, other than Helicpoter Ben, those other guys didn’t have the same mountain of history, and evidence, we have today. We now have case after case after case of high government spending NOT leading to inflation. We even have evidence of inflation occurring  without high government spending or war.  How do you square that circle in a Friedmanite model? You can’t. It’s like economic departments still teaching the Phillips Curve without any modern evidence to show it is valid anymore, if it even ever was. 

So why do we keep on “believin?”  Because it’s easy and everyone just goes along with it. You don’t want to stand against the mainstream, do ya? You remember what happened during Covid, dontcha?  It’s scary standing against the crowd. And trust me, the crowd is thoroughly on the side of government spending causing inflation. But crowds can be wrong. Again, you remember what happened during Covid, dontcha? If that didn’t dissuade you from “trusting the science” well I don’t know what will and you really should unsubscribe from this email list. 

We are a free-thinking group here. You don’t have to believe in my crazy ideas. I don’t have to believe in yours. But I’m open and I certainly hope you are too.  If not, well don’t let the door hit you on that sizable rear as you leave.  There is no time for statists; There is work to do!

So, go watch that video. Buy Richard’s book and see if you become at least receptive to the idea that maybe, just maybe, what we’ve all “known” about inflation isn’t right after all.