Thursday, March 05, 2009

A thought on inflation and binding arbitration

In The Revolution: A Manifesto, Ron Paul explains inflation:

Ludwig von Mises used to say that governments will always try to get people to focus on prices when thinking about inflation. But rising prices are a result of inflation, not inflation itself. Inflation is the increase in the money supply. If we understood inflation that way, we would instantly know how to cure it: simply demand that the Federal Reserve cease increasing the money supply. By focusing our attention on prices instead, we are liable to misdiagnose the problem, and we are more apt to accept bogus government "solutions" like wage and price controls, as in the 1970s.

And if inflation is the increase in the money supply... and Bernanke & Geithner have doubled the money supply in the past year or so... then after the banks begin loaning out their bailouts... does that mean inflation will soon be visible in the price of consumer goods?

I'm guessing it will.

Then how does the binding arbitration system react? Do raises / steps remain at 4% to 5% per year? If inflation hits 15% next year, then does the teachers' union ask to return to the table?

I briefly mentioned this during the November 2008 vote on the contract. I would've liked a one year contract because I expect our inflated money supply to be visible in the price of consumer goods in the not-so-distant future.

Tim White

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