Over 15 years ago I published an op-ed on how businesses have to respond to inflation. I think it bears repeating today so I’ll put it here on BATG as well. Obviously Bidenomics has crushed these old numbers; you can’t get a fast food meal for under $9 in most places now. For you younger Bereans Alan Greenspan was The Maestro of monetary policy as Chairman of the Federal Reserve Board, and he was followed by Ben Bernanke.

How Al and Ben swiped your bacon

“I’ve been scammed!” thundered my almost 15-year-old son, as he looked down disgustingly at the paltry portion nestled between two buns.* You see, my voracious carnivore had suckered me into “doing what tastes right.” He is known for sampling bacon cheeseburgers at every restaurant he enters, searching for that ultimate burger. One of his favorites is at Wendy’s – the junior bacon cheeseburger. You can buy them for 99 cents, so his order is now up to two junior bacon cheeseburgers, a five-piece chicken nugget, fries and a drink.

So how had Matt been scammed? Much to his consternation, the junior bacon cheeseburger now only comes with one piece of bacon; it used to come with two. Fathers everywhere, especially economists, look forward to “teachable moments” such as this, when Matt’s outrage demanded an explanation. The answer is that Alan Greenspan and Ben Bernanke** took his piece of bacon. Those rascally guys are behind Wendy’s counter, and they love bacon more than my son. So as the cook carefully lays down two pieces of bacon, they reach out and grab one before the top bun goes on.

While Al and Ben aren’t actually that nefarious, their actions lead to the same result. I explained to my son how the Fed creates money. With too many dollars chasing too few goods, something has to change – usually prices rise, but not always. Less than 10 years ago, when my son first started eating those tasty cheeseburgers, I would settle for a quarter-pound combo, at a price of $2.99. Today, that combo is $4.59, an increase of 53.5 percent. During Alan Greenspan’s tenure (who was ostensibly a “good” central banker), consumer prices rose 77 percent in 19 years (heaven forbid we get a bad one)!

But there are other options to raising prices. A business can cut costs by sacrificing quality. So if Wendy’s wants to keep an item under $1 to stay on its value menu, they cut out a piece of bacon. As their website describes, it is “Still your favorite bacon cheeseburger. Just a bit smaller.” Now of course, I’m not blaming Wendy’s; I blame Al and Ben. Wendy’s, like most businesses, is simply reacting to monetary forces it did not cause.

Perhaps I’m being too hard on Al and Ben; after all, they claim not to know what money is anymore and suggest that during a bubble it is impossible to know you’re in one. Ben Stein, in a recent New York Times op-ed, suggests we don’t even know what causes inflation. I concede that financial innovation has made precise control of the money supply an inexact art; nonetheless, we do know some things about money and inflation that guide action.

First, the old dictum inflation is always and everywhere a monetary phenomenon is always and everywhere true. So with commodities going hyperbolic, we ought to understand the cause is earlier excessive money creation.

Second, money doesn’t enter the economy via either Friedman or Bernanke “helicopters.” It enters through the process of bank lending, which means that somebody gets the new money first, and the effects of inflation will be varied and unequal across the economy – only in the long run will all prices rise. If policymakers wait until all prices rise, we will have a really big problem.

Third, and related, consumer price inflation is only one aspect of inflation (usually the final); asset inflation is often earlier and much more pernicious (as it causes long-lasting distortions in our capital structure).

Fourth, while financial innovations affect the “inverted pyramid” of money, the Fed still has absolute control over the amount of reserves that forms the base of money supply. So while we may not know precisely how much effect a change in reserves will have on money supply and inflation, if we see inflation heading in the wrong direction or a bubble forming, we do know how to alter its course.

I spared Matt some of these complexities (I’ve seen his teenage rolling eyes before), but he followed with the salient question: Why don’t we stop inflation? The answer is not that we don’t know how; but there is simply no political will. Sound money calls for deferred gratification; politicians and constituents want instant gratification. So what do virtually all politicians demand, and what does the Fed dutifully do, upon any financial hiccup? They don’t ask Ben to speed up the printing presses, just increase liquidity and lower interest rates. But to say one is to say the other. The good news, I told Matt, is you will be a millionaire sooner than you expect; the bad news is your junior bacon cheeseburger will be $20. He finally got it. He shouldn’t think of prices as rising; rather the value of our dollar is falling.

https://www.wnd.com/2008/01/45532/

*This is a true story, from the back set of captain’s chairs in an ’04 Dodge minivan. Matt’s outrage was because he didn’t have two pieces our previous time at Wendy’s, but he thought the first time it was just a mistake. Once he saw this one, he knew it was deliberate, and that he would no longer get his two pieces of bacon. I still have to smile thinking about his back seat outrage!

** and now Joe Biden!