As inflation rages on, and State-employed professors like Pratap Bhanu Mehta write their columns suggesting the cause to be "supply-side bottlenecks" - this blog has always stuck to revealing the real cause: that is, increases in the supply of money by The State. Inflation is a purely monetary phenomenon. It is a "deliberate policy" used to finance The State and its welfarism. Thus, the only solution is a balanced budget.
However, today, a new solution has been proposed by the Chief Economic Advisor to our The State. The news report says:
The country’s Chief Economic Advisor, Kaushik Basu, has made a formal pitch to the government for permitting foreign direct investment (FDI) in multi-brand retail in a bid to tackle inflation.
In case you don't believe this, here is another report on the above recommendation by a committee of baboos headed by Kaushik Basu.
To disprove this bald lie - that inflation in caused by supply bottlenecks and supermarkets are the cure - here is a post from Robert Wenzel at EconomicPolicyJournal.com on inflation in the USSA. Wenzel shows how the cost of a barbecue has risen by 29 percent over last year. And this is not by his own calculations; rather, he provides his reader with a CNBC television clip in which the anchors made the calculations. The data is as follows:
Prices for a barbecue this year vs last year: +29%
Ground beef: +14%Lettuce +28%Tomatoes: +86%Potato Salad: +27%Corn on the Cob: +150%Coffee: +20 %
The CNBC television clip is available here.
Wenzel has also provided a link to a NYT column dated April 16, 2011, by the Keynesian Nobel laureate Paul Krugman, in which the conclusion reads:
"But there’s nothing here to suggest any reason to consider inflation a problem."
Krugman has been a leading voice arguing in favour of bigger and bigger "stimulus packages" of easy money to "get the economy out of recession." This is the advice our The State also took - hence there is inflation all over the world, including, of course, in the USSA, which began it all.
But let us ask Professor Kaushik Basu of Cornell University in the USSA:
Why is there such high "food inflation" in the USSA, where they have huge supermarkets in every city block?
Obviously, supermarkets are not going to cure inflation. The inflation in India was not caused by the absence of supermarkets. Rather, it was caused by the Finance Ministry and the Reserve Bank of India.
Let us now put the Bozo-Brigade aside and hear the great Ludwig von Mises himself on inflation:
A government may finance its budget deficit by inflation. Then the government puts itself and some groups in a profiteering position and the majority of the population in the losing position. No new material means of production, no new capital goods are added to the wealth and income of the nation. Here, too, the government's additional spending power is entirely derived from the income or capital of its citizens. The nation's material potentialities are not improved a bit.
The same is true in case of war....
Whether in peace or war, inflation as a method of financing government expenditure is always the outcome of a deliberate policy. We do not have to deal with the problem of determining which method of war financing is best. We have only to emphasise that in times of war, too, inflation is neither necessary nor unavoidable. There are, of course, politicians who consider inflation as a lesser evil when compared with a total financing of war expenditures by taxes and loans from the public. These men underrate the danger of domestic unrest brought about by inflation and still more the futile attempts of the government to fight its unavoidable consequences - the rise of prices - through price controls.
I see domestic unrest ahead - in the USSA.
And as for Kaushik Basu & Co. - the title of this post says it all.
Drop out of their Economics courses and log on to www.mises.org.