The problem with cost-push inflation is not the inflation, but the
cost-push. If we're seeing prices rise, if we're seeing inflation, then
I'm willing to agree it must be that there is enough money (or credit, or
velocity) to allow it to happen. But if the inflation is cost-push,
then the inflation is not the problem: The cost-push is the problem. For
if the cost-push pressure is not allowed to vent as inflation, then it
will put downward pressure on profit. And that will put downward
pressure on economic growth. And that puts downward pressure on you
and me.
I have a problem with people who insist "there's no such thing as cost-push inflation". But not because they insist it's the quantity of money that allows inflation to occur. I have a problem with them because their argument is incomplete. They want to prevent the inflation, and that's as far as their thinking goes. They never think about what else might be affected by the cost-push pressure if it doesn't find release through inflation.
It finds release by slowing the economy. And the slowing continues until the pressure is relieved.
I am not saying we should opt for inflation. Heavens, no. I'm saying that suppressing inflation doesn't solve the cost-push problem. I'm saying we need to solve the cost-push problem, so we can prevent both inflation and long-term decline.
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For the record, in 1977 I wrote:
"The solution to inflation is "less money." The solution to unemployment, is "more money." This is a magnificent answer for an either/or problem. But when the problem is "both," the logical solution is to increase and decrease, at the same time, the country's money supply. The two solutions cancel each other out, and as we well know, both problems remain.
Our economy is facing a both problem. The solution to that problem is to do two contradicting things to the money supply."
A "both" problem: both inflation and long-term decline.
In 43 years, I have not changed my focus.
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