We have previously1 used the CPI data available since 1913 to create annualized inflation data aligned with the federal fiscal years from 1914 to 2022. In this post, we use the timeline-matched data to examine leads or lags that may exist between the two variables – government spending and inflation.
Credit: Photo by Ann H from Pexels
In previous posts on this topic,1,2,3 we have looked at the historical records of inflation and deficit spending by the U.S. federal government. The changing dates for the government’s fiscal year over the country’s history confounded the correlation analysis of that data. Since 1913, U.S. inflation data has been recorded monthly. In this post, we will use the data since 1913 to align the timelines of the two variables.
This post will address how data sampling affects the analysis results for correlations between U.S. deficit spending and inflation. In Part 11of this series, it was seen that there is significant variability in this correlation over time. It is essential to know whether that variability is affected by changing the data sampling structure. If changes are connected to data treatment, care must be taken to ensure conclusions are fundamental to the overall data and not an artifact of how it is organized.
Image credit: Gerd Altmann from Pixabay2
“Inflation is always and everywhere a monetary phenomenon.”
. – – Milton Friedman1
Nobel laureate Milton Friedman is considered to be the father of monetarism. This macroeconomic theory enjoyed popularity in the late 20th century but has come under increased criticism in the 21st century. Monetary theory is deeply linked to arguments about the causes of inflation. As shown here, there is little data to support Friedman’s theory that government spending generally causes inflation. The issue is not as simple as he made it seem.
Milton Friedman, age 77, 1989. Credit: Encyclopedia Britannica.
re “Inflation is always and everywhere a monetary phenomenon.”
. – – Milton Friedman1
Note: An updated, expanded, and further edited version has been published here.
Nobel laureate Milton Friedman is considered to be the father of monetarism. This macroeconomic theory enjoyed popularity in the late 20th century but has come under increased criticism in the 21st century. Monetary theory is deeply linked to arguments about the causes of inflation. As shown here, there is little data to support Friedman’s theory that government spending generally causes inflation. The issue is not as simple as he made it seem.
Milton Friedman, 1989. Credit: Encyclopedia Britannica.
Since the Great Financial Crisis of 2008, there have been headlines such as Europe banks hoarding ECB cash, threatening credit crunch (2012), Banks across Europe are considering taking a drastic step to avoid negative rates (2016), and Bank of America Clients Hoard Cash at Highest Level in Two Decades (2022). This first became a problem in the US during the Dot.com Crash (2001) and the GFC – and then shifted to Europe. After all this time, we in America might have a more dispassionate view of the issue. But the third reference above shows the problem of hoarding money persists.
Image credit: Pixabay, Public Domain.
Over the years, I have written in many venues about the extreme importance of four economic rights and responsibilities and their transformation into four Concordian economic policies. My writings on this topic have consistently received the most readers, all over the world.
To my unending surprise, spurred by our immediate needs I have recently discovered
another major—major—ability of Concordian economics. Here it is: With the tools offered by
Concordian economics, we can stop inflation cold.
Let us see how.
