econscius

Blaming Bachmann for the Wrong Thing

In 2012 Elections, Michele Bachmann on July 6, 2011 at 3:42 am

A ThinkProgress (“TP”) piece called “Bachmann Fails Economics 101: A Dollar In 2011 Should Be The Same As A Dollar In 1911” launches a hit on Republican Presidential candidate Michele Bachmann.

TP says Bachmann “made a series of laughably uninformed economic claims:”

“BACHMANN: The shorthand way of describing to you what quantitative easing is is a license to print money without any value behind it…In the last two years of the Obama administration, if you pull a dollar out of your pocket, you have lost 14 percent of the value of that dollar. That means the federal government has stolen that money from you… They’ve been printing essentially valueless money and flooding it into the money supply. I don’t stand for that. A dollar in 2011 should be the same as a dollar in 1911. A dollar should be worth a dollar.”

TP’s Marie Diamond follows, “A dollar in 1911 had the same buying power as slightly more than $23 today.  Bachmann doesn’t seem to understand that the dollar’s value naturally changes over time and accompanies economic growth — and that’s a good thing.”

Not quite.  Inflation is not necessarily a good thing.  Just ask anyone who lived through 1970s America or 1920s Weimar Germany.  A seriously debased currency is a hallmark of poorly governed nations.

No less a master of Economics 101 than the Nobel Prize winning economist Milton Friedman and his wife, the economist Anna Schwartz, argued in their classic work  A Monetary History of the United States, 1867-1960, “inflation is always and everywhere a monetary phenomenon” [2]. 

US Inflation from 1913. Source: wikipedia commons http://en.wikipedia.org/wiki/File:US_Historical_Inflation.svg

The United States has experienced solid economic growth with low to non-existent inflation in times such as in the 1920s.  We have also experienced high inflation during times of economic stagnation and decline such as in the late 1970s/early 1980s.  High inflation has been associated with the aftermath of costly wars (e.g. American Revolution, Civil War, WWI, WWII & Vietnam).  There is no question, for example, the Continental Congress did use the printing press to fund the Revolution.  Continental Dollars quickly became worthless.  The weakness of the US Dollar after wars like Vietnam was hardly “natural”.  Ms. Bachmann may be a bit early in diagnosing runaway inflation though it is always a threat during times of monetary easing and fiscal stimulus. 

US Historic Inflation. Source: wikipedia commons http://en.wikipedia.org/wiki/File:US_Historical_Inflation.svg

Certainly the gist of Bachmann’s point, that inflation is a silent thief that constantly erodes the value of your money, is correct.  A century of zero percent inflation is probably unrealistic, but TP is off-base in saying the huge cumulative decline in the value of the dollar since 1911 is “a good thing”.

Ironically, with TP trying to attack Bachmann on inflation, Ms. Diamond missed the obvious factual error in Bachmann’s statement.  Bachmann said inflation has reduced the value of a dollar by 14 cents in the past two years of Obama.  The BLS unadjusted CPI rose 2.9% in 2009, 1.9% in 2010 and is up 1.7% in the first five months of 2011. [3] [4] [5]  I cannot even see where Bachmann came up with the 14% figure. 

Bachmann made a factual misstatement, but not the one TP accused her of.

[1] http://thinkprogress.org/economy/2011/07/01/259149/bachmann-fails-economics-gold-dollar-1911/

[2] http://en.wikipedia.org/wiki/Monetarism accessed 7/5/11.

[3] pg. 3 of http://www.bls.gov/cpi/cpid1012.pdf

[4] pg. 3 of http://www.bls.gov/cpi/cpid1012.pdf 

[5] pg. 3 of http://www.bls.gov/cpi/cpid1105.pdf

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  1. It almost sounds like Bachman is advocating a gold standard. But it is difficult to adhere to such a standard without running the risk of deflation. I like Sowell’s approach to it.

    • Gus, I think Bachmann rather cleverly used language that implied she might favor a gold standard without actually saying she would. You could take her comments as being against inflation or you could interpret them as supporting a gold standard, though she did not actually say gold standard in that clip. I guess that makes her a politician.

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