In 1957’s Sweet Smell of Success, perhaps one of the greatest pictures ever made, Burt Lancaster’s powerful New York columnist character tells Tony Curtis, who spends most of the film doing his dirty work in exchange for space in a newspaper, “I’d hate to take a bite out of you, you’re a cookie full of arsenic.” It appears establishment economists are willing to make a similar trade, forfeiting their long-term credibility for a taste of acclaim today. Economists, particularly of the leftist persuasion, have routinely defended the policies of the Biden administration, despite rampant inflation. These distinguished individuals try to dress up the Democrats’ abysmal efforts and call it manna, while sacrificing the economics profession and its legitimacy.
Paul Krugman Rejects Inflation Reality
U.S. annual inflation is the highest in nearly 40 years, flirting with the 7% mark. The Federal Reserve’s favorite inflation measurement, the personal consumption expenditures (PCE) price index, is also at a multi-decade high. Suffice it to say, this inflationary environment is threatening both the post-pandemic economic recovery and the personal finances of millions of poor and middle-class households. But one economist will not weep for those impacted by inflation.
Paul Krugman, the Keynesian darling of the establishment, has regularly written about America’s most pressing problem, recently tweeting, “‘Inflation especially hurts the poor’ has truthiness — it sounds like it should be true. But I don’t see either evidence or a mechanism.” Krugman’s flippancy regarding the plight of millions of Americans has been on public display for months. He has been correct that inflation benefits debtors rather than creditors since it devalues the debt that needs to be repaid, but this is hardly relevant for grocery and gasoline prices.
Of course, Krugman is not the only expert to deny today’s sky-high inflation. Many other economists, media outlets, commentators, and administration officials have brushed off the worries. At the same time, these people initially rejected inflation fears, telling everyone that soaring prices would not come to fruition and that anyone concerned about a rising consumer price index (CPI) was a partisan conspiracy theorist. Not only were they behind the curve on inflation in 2021, but the data also suggest their insistence that inflation does not hurt the impecunious and middle-class is wrong, too.
On The Ground
The Penn Wharton Budget Model analysis discovered that low- and middle-income folks spent 7% more last year on the same products they bought in 2020 and 2019, totaling approximately $3,500. Rich households’ spending jumped by close to 6%.
In December, Gallup released the results of a study that found 71% of families making less than $40,000 per year were being hurt by the rising cost of food, gas, and other necessities. Forty-seven percent of middle-income Americans and 29% of upper-income households confessed to feeling hardship over these economic conditions.
Citing research from the Federal Reserve Banks of Cleveland and New York, the Joint Economic Committee published an analysis in November that showed impoverished Americans were disproportionately affected by inflation. The bottom 20% of U.S. households spend 4.5 times more of their income on food and housing than those in the top 20%. Moreover, the report highlighted that low-income individuals’ lifetime buying opportunities were reduced at a greater rate than wealthier people.
Even the World Economic Forum, which is not exactly an anti-statist, pro-sound money institution, purported that “the poorest in society are suffering the most.” Across the globe, according to an Ipsos Reid survey, seven out of ten people reported paying higher prices for a diverse array of goods and services, like vehicle fuel and public transportation.
One of the chief problems in this post-crisis landscape is that inflation is broad-based, with nearly everything skyrocketing. Beef and egg prices are up 21% and 8% year-over-year, respectively. The country’s median rent climbed 17.8% in the first 11 months of 2021, while the median sales price for a single-family home advanced 13 percent at the end of the year. The national average gas price is $3.29, up from $2.25 the same time a year ago. Be it daycare or a carton of milk, everything is more expensive.
Donald Klepper-Smith, chief economist at DataCore Partners, LLC, also made an excellent point when he remarked that inflation measurements are outdated: “It’s not measuring the cost of living anymore, it’s measuring the cost of surviving and barely, at that.”
Ivory Tower Economists Disgrace the Field
There is an old saying, “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.” Indeed, economists are not popular because everyone expects them to be able to gaze into crystal balls and be accurate 100% of the time. For one thing, economics is the study of human action. Second, like most other professions, there is a difference of opinion between all sorts of economists, from the Austrians to the Chicago School to the Keynesians. Data can tell anyone a lot about the world. The statistics prove a critical fact: The average American is getting hammered by inflation, and the establishment economists sitting in their ivory towers are blind to this trend.
When economists like Paul Krugman and Joseph Stiglitz are delivering commentary and op-eds that toe the Democratic Party line, they may believe “the cat’s in the bag and the bag is in the river.” But their published works are still cookies full of arsenic.
~ Read more from Andrew Moran.