The inflation outlook has improved, but it is still very much in the news. Although the rate of increase has slowed, prices remain more than 20 percent above what they were four years ago. At the same time, most analysts understand that the slow and at times negative growth of the money supply, which has tamed inflation somewhat for now, cannot be sustained.
Now that the Fed has announced its 50-basis-point cut in the federal funds rate, it will be opening the money spigot again. To be fair, the increase in the rate of growth of the money supply needed to achieve this reduction in the federal funds rate is modest. But as the Fed continues to reduce rates, the rate of money growth will increase, and so the likelihood of future inflation will rise. Since the Fed has given every indication that many more rate cuts are coming, what either presidential candidate has to say about inflation has never been more important.
Several weeks ago, Kamala Harris offered us her Greed Theory of Inflation. In short, people are suffering from high prices today because of greedy corporations. That’s it. As the estimable economist and policy analyst, John Goodman, documented recently (The Greed Theory of Inflation), she is rather alone on this one. Even very liberal economists who vociferously support Democrats do not make this argument, and most will refute it if queried.
Harris either believes what she is saying, or she doesn’t. Having an undergraduate degree in economics and exposure to highly educated people for many years in her various roles in government, truly believing what she is saying should be impossible.
But if she doesn’t believe what she is saying, then this might go down as one of the most cynical acts of political dishonesty of all time. Even worse than either possibility is that it is a little of both.
Economists used to enjoy a very good reputation among ordinary citizens and elected officials. In the popular television show The West Wing, for example, President Jed Bartlet was a Nobel Prize-winning economist, to establish from the beginning that there was no question about his intelligence, academic achievement, and intellectual honesty.
Today, economists no longer receive that kind of automatic respect, and for good reason: too many have traded on the respect normally accorded to their discipline to advance their own political views. But a competent professional economist of integrity cannot possibly believe the Harris Greed Theory of Inflation. Competent economists understand that if greed simply means wanting things badly, then by the very structure of their own paradigm everyone is greedy, so the word is useless.
In June of 2020, inflation was .6 percent. It then rose to a peak of 9.1 percent in June of 2022. It fell steadily from that peak to 3 percent in June of 2023 and has stayed low ever since (it was 3 percent in June of 2024). By the Harris Greed Theory, corporations became increasingly greedy from June 2020 to June of 2022, and then became less greedy over time.
A much better, and very well-known, explanation for our recent whipsaw of inflation is money growth. The Fed was worried about disruption during COVID, so it dramatically increased the money supply. Inflation caused by supply disruptions began rising even more rapidly, precisely as monetary theory predicts, so the Fed hit the brakes hard on money growth; so hard, in fact, that the money supply began to contract (see below). Predictably, inflation then began to come down.
If greed and not monetary policy were the culprit, why did the federal government fail to rein in corporate greed at the beginning of the Biden-Harris administration, but then successfully do so over the last year? Kamala Harris should be asked this question by the media since she proposed the Greed Theory. Even if that never happens, economists with integrity should not wait to be asked that question. They should call out such nonsense unilaterally.
The Trump-Vance ticket is playing the same kind of game with foreign trade policy. But there has been no shortage of economists from every political persuasion raising great objection to increasing tariffs in service to government led industrial planning. Economists should not be exacting about things they politically disagree with, but generous with things they do. With respect to economics per se, they should call balls and strikes with the utmost of intellectual neutrality.
