Governments have printed too much money

Deirdre N. McCloskey

Inflation!! The word irritates voters worldwide, and tempts them into populism. France this Sunday chooses between Macron and Le Pen, between a democrat and an authoritarian. France?! With an inflation rate of a little under 4%?! While Ukrainians are dying by the hundreds every day to defend democracy, French voters, irritated by paying a little more for bread and petrol, look into the abyss, tempted to give it a try. In my own country, the Republican Party has been taken over by Trump-Bolsonaro-Putin authoritarians. Biden’s Democrats, who at least are democrats, face a wipeout in next November’s elections, because of an inflation rate of 8% Watch out: in Brazil it’s about 10%.

All this is silly, for two reasons. People, even some misled economists, will say things like, "Prices are rising so fast that wages can’t keep up." They are correct to watch "real" wages, that is, the physical amount your salary can buy in real goods and services. Liters of petrol. But macroeconomics is not a horse-race between wages and prices. Your real wage depends on your real productivity and your scarcity in supply, not on how many zeros are added to a $R 1000 note.

And for another thing, the inflation is in fact worldwide. Governments have printed too much money. In a rare case of a proverb getting the economics right, too much money is chasing too few goods. Macron and Biden and even Bolsonaro can’t fix it.

In a world of rigidly fixed exchange rates between, say, the dollar and the real, everyone would have the same inflation rate. It’s for the same reason that Bahia and Rio Grande do Sul, New York and California have about the same inflation.

Things only get out of hand, the way they did in Brazil in the 1960s and 1980s, with 100% per year inflation, if exchange rates can float. At a such level the inflation starts to confuse people seriously about real scarcities.

When the US astronauts arrived on the moon they found a Brazilian. Astonished, they asked how he got there. "On the Brazilian price level." But how are you going to get back? "On the Brazilian exchange rate."

But not nowadays. Inflation doesn’t matter. Relax, and don’t vote for another authoritarian.