Sunday, May 10, 2009

Inflation Watch

I saw Star Trek with my brother today. It was a fun time. But let's talk about monetary policy, instead.

'Star Trek' boldly goes to $31M at box office
The best opening weekend ever for the franchise was $30.7 million for 1996's "Star Trek: First Contact." According to inflation-adjusted numbers compiled by Hollywood.com, that translates to $51.2 million in today's dollars.
It's figures like that that just make your jaw drop. I couldn't quickly find how Hollywood.com calculates it's inflation adjusted ticket prices, and if I'm not mistaken movie tickets have been outpacing general inflation, but still. That's a 67% increase in the price of a movie ticket in just thirteen years. And yet Bernanke and the Fed remain committed to bringing back inflation at all costs.

Years of inflation helped create the current depression by discouraging saving and encouraging excessive borrowing. Inflation makes nominal values worth less over time--the same number in your bank account translates to less "stuff" over time, and the real value of your debt grows smaller even though the number stays the same.

Now, neither inflation or deflation are inherently bad if they are the result of market forces, but in most modern economies, inflation and deflation levels are determined (at least in the long run) by the actions of central economic planners, like my favorite secret society, the Federal Reserve. Meddling with the money supply like this creates distortions in the market which creates or exacerbates the boom-and-bust cycle the Fed is supposed to be combating.

Like many government agencies, the Fed has been given an impossible task, and it would be a better use of government resources to simply shut it down. Instead, it carries on year after year pretending to be an omnipotent, omniscient force for economic good.

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