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Wednesday, October 26, 2005

well said

Excellent post over at Cafe Hayek, where Don Boudreaux explains some essentials to the New York Times:
Although I understand that changes in the demand for money, as well as innovations by financial institutions, complicate matters somewhat, the looming truth remains that inflation is not like a lion needing taming. It is, instead and overwhelmingly, a product of excessive monetary growth.

Because the Fed largely controls the supply of U.S. dollars, the Fed's role isn't to "tame" inflation. Rather, the Fed's role simply is not to generate it. It can achieve this goal very, very easily -- namely, by not increasing the money supply.

This is no difficult task.

But the popular account of inflation still portrays inflation not as something caused by excessive monetary growth but as some alien-like demon, or animal spirit, that visits us from time to time and needing "taming" by smart and brave central bankers.
Exactly.

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