no third solution » Economic Fallacies, Economics Lessons » Inflation: The effect vs. the cause
Inflation: The effect vs. the cause
This headline, “Gas Prices Spur Inflation,” in today’s Washington Post is at the very least, misleading. But it’s part of a pattern of general economic ignorance that is pervasive in today’s media.
Like everyone else — the Post is confusing the effect and the cause.
While it may certainly be true that increasing gas prices are an important component of the consumer price level, the rise in gas prices isn’t the cause of inflation. The effects of rising gas prices are certainly being felt throughout the economy, but the cause of inflation is (now and always) monetary expansion.
In other words, what we’re experiencing isn’t really so much of a rise in oil prices, as it is a decline in the dollar’s value.
Subtle, but distinct.
Written by David Z
A lifelong Michigan resident, David holds a Bachelor's Degree from Central Michigan University and a Master of Arts Degree in Economics from Walsh College of Business & Accounting. Among other things, he is a market researcher, an avid snowboarder, beer-snob, former collegiate rugby player, bacon enthusiast and dog lover.
Filed under: Economic Fallacies, Economics Lessons
It doesn’t take a lot of brains (and that’s why economists can’t figure it out) to figure out that if the money supply is constant and demand doesn’t change, and the price of one thing goes up, then the price of other things should go down.
[...] mean deflation in the same sense that you do, just like the MSM never properly identifies inflation as an increase in the money supply. In any event, deflation is not per se a bad thing. On the other hand, it’s much more [...]
[...] new money is introduced, demand appears to have increased, as manifested by higher prices. These prices tell people “make more stuff.” Seeing a higher price being paid for [...]