“Too Much Money Chasing Too Few Goods”
This is today’s common description for inflation. I hear it used almost daily. I’ve mentioned and critiqued it before, but let’s unpack it more deeply.
Recently, I’ve heard many pundits like Glenn Beck, Steve Deace, and various CNN and FOX anchors use this phrase. Its usage signals to me that understanding the cause of inflation has greatly progressed during the last 50 years, but that the understanding remains superficial.
It is safe to say that it is generally understood that inflation is the fault of the government’s excessive money printing. But there still remains a pronounced disconnect to the fact that it is ONLY due to the empty money printing and the consequential devaluation of the veteran money.
As I have previously explained, the Too Much Money part is roughly correct, but the Too Few Goods part is blatantly incorrect, because it suggests that scarcity is a factor with inflation. Scarcity or supply-demand has nothing to do with inflation.
And I’ve mentioned that the late Milton Friedman had admitted that production DID affect inflation, but that it was a “bit player [his words]” and not worth mentioning (my assessment). Actually, I slightly disagree with Freidman on this. I don’t see production as having anything to do with the creation of empty money. This creation is solely the machinations of the government, and the government (particularly the United States government) produces absolutely nothing of substance. So there.
Nevertheless, the Too Much Money part of the phrase misses the target somewhat as the issue of inflation is not really about having too much of the money but rather having too much of a specific kind of money—the empty money. And perhaps, unless one buys into the argument that a little inflation is a good thing for the economy, any amount of empty money is too much.
So this famous phrase is more a slogan than it is the accurate description of inflation it’s often presented to be.