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Chapter 8 - Governments Cause Inflation?

Published online by Cambridge University Press:  05 April 2014

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Summary

Fears of Inflation

“Government causes inflation” probably stands first among the favorite refrains of the econfakers. Allegedly based on sound economic theory, the argument provides great benefit to the rich and powerful, repeatedly used against public spending. As a practical matter, except for fears of alien invasion, few anxieties are less relevant early in the twenty-first century than those about dangers of inflation.

In 2010 the rate of inflation in the US was less than 2%, and negative the year before. During those two years unemployment in the US rose to over 14 million, close to 10% of the labor force. A US Gallup poll in May of 2010 demonstrated the power of the inflation ideology by reporting that 59% of those surveyed described themselves as “very concerned” about the rate of inflation, with another 29% “somewhat concerned,” and only 15% “not very or not at all concerned.”

In 2012 in the UK, with its unemployment rate of 8% and falling household incomes for three consecutive years, inflation fears allegedly gripped the public: “The Bank of England's dilemma over whether to stimulate the recession-hit UK economy was sharpened further yesterday by a survey showing that the public's inflation expectations have risen in recent months, despite falls in the headline rate [to less than 3%].”

Why should inflation at 2% and 3% grip the public with such angst that its makes rampant unemployment and declining earnings secondary concerns? And why attribute inflation to governments (“the Bank of England's dilemma”)?

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Chapter
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Economics of the 1%
How Mainstream Economics Serves the Rich, Obscures Reality and Distorts Policy
, pp. 141 - 160
Publisher: Anthem Press
Print publication year: 2014

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