The Utah senator didn’t pay much attention to the real Milton Friedman.
Senator Mike Lee clarified several points during his debate with Evan McMullin on October 17. All are debatable.
One point was that our problems with inflation and gas prices would be solved if only we voted Republican. Only then would we have the necessary Republican majority for, uh, what? Lower gas prices and lower inflation?
No end goal or political roadmap was ever mentioned. In this scenario, seemingly working across the aisle to actually solve the problems we face is not his strategy. Maybe he thinks health care and housing are affordable, our schools are safe from gunmen, and our climate is under control.
A second point he made is that our water supply problem would be solved if only we used our public lands differently; as if the problem of empty lakes would be solved by building more empty lakes, rather than revising water use as our rains dry up. It seems Mike Lee has rarely encountered a problem that can’t be solved by plundering public lands that don’t belong to him.
But his third point is simply wrong. He kept quoting Nobel laureate Milton Friedman saying that government spending was the cause of inflation. He then accused Democrats of overspending.
Perhaps he thinks that the wars in Iraq and Afghanistan were gratuitous, or that spending is only bad when it is intended for the well-being of his fellow citizens. Perhaps he hasn’t updated his facts since the inflationary spurt of the 1970s after Vietnam.
In any case, he didn’t pay much attention to the real Milton Friedman. This is what Friedman is in fact famous for saying: “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can only be produced by a more rapid increase in the quantity of money than production.”
A problem for Mike Lee is that the money supply is not generated by government spending. Another problem is that the government does not control the supply of goods. Oops.
The money supply is actually generated by the Federal Reserve in a complex chain of events by which it raises or lowers interest rates and bank reserve requirements in order to impact lending. They can also buy treasury bills as part of a more complex “quantitative easing” measure. However, it is essentially end-user bank borrowings that “create” money.
The Fed and the banks work together to increase available credit, which when borrowed increases the money supply. It is important to note that the Federal Reserve is an independent body, although it is subject to political pressure. They would act the same way under Republican administrations. Every junior banker knows this, but apparently not Mike Lee.
One of the issues we are currently facing is the supply shortage resulting from the COVID-related shutdowns which are hitting just when COVID-related money supply growth allows for even more spending.
Yes, the Federal Reserve has created more money supply during COVID so the economy doesn’t collapse. Without extra cash providing lifelines during our shutdowns, countless small businesses would have run out of cash and closed forever, creating a decades-long process of recovery rather than a short burst of inflation.
Maybe they created a little too much credit. Perhaps Lee prefers the risk of a lost decade of depression to a surge in inflation.
Going forward, as supply chains recover (and production increases), while individual consumer bank balances are depleted by spending (and money supply shrinks), supply and demand should converge and the situation should improve.
In fact, leading indicators of supply chain input prices are already pointing in this direction. Input prices decline as supply begins to exceed demand in most x-energy areas, and this will eventually result in “inflation” as measured by the consumer price index.
It would be nice if Senator Lee actually understood the mechanics of how his main platform programs work.
Roxane Googin, MBA, Park City, is a retired stock analyst.