Zachary Karabell is wondering where the heck is the hyperinflation is already. Writing for the Atlantic Karabell writes,
The disappearance of inflation over the past 20 years, however, has barely dented the pervasive belief that inflation remains one of the greatest threats to economic stability. These convictions persist in spite of all evidence to the contrary: Inflation is nowhere visible. For many, that is just proof that we are living in a lull — a phony war soon to be disrupted when that age-old enemy reappears and wreaks havoc.
Nowhere visible? Money manager Karabell writes that bread has gone for 40 cents loaf in the 70′s to $2.00 today. But hey, in his interpretation that’s not price inflation. It’s just perceived price inflation he says. That 5-fold move in our daily bread “cements a perception of inflation,” he writes.
See it’s not inflation because people are spending less on food as a percentage of their incomes. “In 1972, Americans spent 15 percent of their disposable income on food; today, that figure is 11 percent.” And it’s not like salaries are going through the roof, so the price of food must be going down.
But that says more about technology than monetary policy. Today, only 2 percent of America’s population works in agriculture. A century ago over 40 percent of the workforce was toiling away on the farm. Agriculture was labor-intensive then, 22 million animals worked the fields. Now 5 million tractors and other implements do the work. Farms have become more productive and specialized. And the number of farms has plunged, while the average-sized farm has quadrupled.
According to the USDA’s website, in 1945 it took 14 labor hours to produce 100 bushels of corn on two acres. By 1987, it only took 3 labor hours and one acre to produce the same amount. Now, it takes less than an acre.
Without the Fed, it’s likely that 40 cent loaf of bread from the 70s would cost a nickel today, given all the efficiencies gained in the field. For guys like Karabell, as long as we don’t have five or ten dollar bread prices are steady.
In the absence of soaring prices, Karabell says gold bugs give the excuse that the Fed has created a bunch of money and so, just look out, it’s coming. He’s wondering, “What, then, is the statute of limitations for inflation? How long must there be low, low inflation before the risk of it is judged as de minimus?”
“One pernicious cliché is that history repeats itself,” sniffs Karabell. “It doesn’t. Historians repeat each other ‑ and economists then pile on with theorems based on a limited amount of history that then constitute ‘laws’ of economics.”
Prices have been flat forever he says, so instead of fretting about inflation (like Ben Bernanke is worried about inflation?), we should “instead focus on the ability of our national economies and the global economic system to generate sustainable living standards for billions of people.”
Of course it is sounder money with the prospect of less capital being misdirected into unproductive assets that would go a long way towards generating sustainable living standards. Instead, Karabell implies that the Fed can print higher living standards.