Inflation vs “Stuff Getting More Expensive”

To clarify something in response to some emails I’ve gotten, if you want to argue that inflation is “really” higher than I (or Ben Bernanke or the statistics) thinks that it is, it doesn’t suffice to just point to the fact that some things are more expensive. Prices go up for something or other all the time. The neighborhood I live in is a mix of brand-new high rises and surface parking lots. Right now it’s cheap to park in those parking lots. As the lots continue to be replaced by high rises, the price of the remaining spots will go up. That’s not inflation, that’s scarcity.

If tastes shift and starting on Monday Americans stop drinking whiskey, gin, vodka, and beer and just want to drink tequila all the time, then the price Canadians need to pay for tequila imported from Mexico will go up. That doesn’t mean Canadian monetary policy will suddenly become too loose. In the American context, upward trajectory of college tuition cost is a very real problem. But it’s not a reflection of inflation. It’s a combination of cuts in state government higher education budgets and some deep dysfunctions in the underlying structure of the whole enterprise. Rightwingers are fond of quoting Milton Friedman, “inflation is always and everywhere a monetary phenomenon.” Think about that and recognize that he couldn’t possibly have meant that each and every increase in the price of anything was a monetary phenomenon.