With the nation experiencing its worst bout with inflation in 40 years, it seems a good time to revisit the wisdom of the late Nobel Prize winning economist Milton Friedman.
One thing is certain: Friedman would conclude the Democrats’ “Inflation Reduction Act,” which the Senate passed over the weekend, will in no way reduce inflation.
The legislation includes $369 billion in climate change and energy initiatives as well as $248 billion in enhanced Affordable Care Act subsidy payments, assuming the provision is extended for ten years, as the Wharton School and the CBO have suggested is what the Democrats would seek to do down the road.
The Inflation Reduction Act uses a budget gimmick by only funding the subsidy enhancement for three years to keep the price tag down.
Again assuming the subsidies are extended, Wharton calculated only $89 billion would be left over from increased tax revenue created by the law to reduce the deficit — over 10 years.
In a lecture during the Carter administration in the late 1970s, Friedman explained why deficit spending is the true cause of inflation.
“Secretary Blumenthal knows as well as you and I do that inflation does not come from trade unions,” Friedman said.
“That doesn’t mean that trade unions aren’t grasping. Of course they are. But they don’t produce inflation for one simple reason: They do not own a printing press on which you can turn out green pieces of paper,” he continued.
“The only such printing press is in Washington. I say printing press — of course — in the modern age we do it in a more sophisticated way: We use bookkeepers and accountants and computers, but it comes down to the same thing,” Friedman said.
The economist reiterated that inflation is a federal government problem.
“Inflation is made in Washington because only Washington can create money. And any other attribution to other groups of inflation is wrong,” Friedman said.
“Inflation is made in Washington, because only Washington can create money. And any other attribution to other groups for inflation is wrong…”
– Milton Friedman pic.twitter.com/rOgtMgPzX9
— Tea Party Patriots (@TPPatriots) August 8, 2022
“Consumers don’t produce it. Producers don’t produce it. The trade unions don’t produce it. Foreign sheiks don’t produce it. Oil imports don’t produce it. What produces it is too much government spending and too much government creation of money and nothing else,” he added.
Friedman’s answer drew applause from the audience, prompting him to comment further.
“Before you clap, let me point out that the reason why we have too much spending and too much printing of money is because you people want it, you and I. We’re citizens. We run this country,” he said.
“We would all like to get something for nothing, and so the political process has been leading to Congress increasing spending, not increasing taxes and financing the difference by the hidden tax of inflation,” Friedman contended.
“We have met the enemy and they is us.”
Friedman served as a top economic adviser to Carter’s successor, Ronald Reagan, whose administration successfully brought inflation down from nearly 13 percent to 3.8 percent by 1982.
“Mr. Blumenthal said Mr. Biden should heed the lessons of Mr. Carter’s failed attempts to curb inflation by avoiding measures that are counterproductive. He urged Mr. Biden to support a substantial interest rate increase and to abandon his sweeping legislative package in favor of deficit reduction,” the Times reported.
“Inflation fighting comes first,” Blumenthal said. “He has to show the recognition to the public that inflation has lasting deleterious effects on the economy and that by trying to take half measures now, you merely prolong the pain of these effects.”