no third solution

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Inflation: The effect vs. the cause

December 14th, 2007

This headline, “Gas Prices Spur Inflation,” in today’s Washington Post is at the very least, misleading. But it’s part of a pattern of general economic ignorance that is pervasive in today’s media.

Like everyone else — the Post is confusing the effect and the cause.

While it may certainly be true that increasing gas prices are an important component of the consumer price level, the rise in gas prices isn’t the cause of inflation. The effects of rising gas prices are certainly being felt throughout the economy, but the cause of inflation is (now and always) monetary expansion.

In other words, what we’re experiencing isn’t really so much of a rise in oil prices, as it is a decline in the dollar’s value.

Subtle, but distinct.

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no third solution

Blogging about liberty, anarchy, economics and politics