Important: Articulating the "Mirage of Inflation"Submitted by gweb214 on Tue, 09/06/2011 - 17:02
I just finished reading "The Mirage of Inflation" again from Henry Hazlitt's book. I believe that the separation between the poor and the rich is a HUGE talking point that RP should put much more effort into conveying.
The transitional period of inflation, in which the initial receivers of printed money benefit while the poor are secretly/deceptively pickpocketed, is not too difficult to explain.
Initial Inflation: The Fed starts the money supply boost by loaning to banks or using their other methods to pump the system.
Rich Benefit: The banks now have extra "money" to buy cheap goods with.
Initial Price Rise: With the extra demand from the bankers' new money, prices begin to rise to a new equilibrium.
Transition Period: During the transition to new equilibrium, bankers and the groups who first received the new money enjoy buying cheap goods from the "yet to be inflated" prices. Everyone else has the same amount of dollars they did before the inflation but begin to pay rising prices.
End of Price Rise: New equilibrium prices have been established. People, who did not receive any of the new money or saw very little of it, now see higher prices with little increase in their personal money supply from the transition period. Therefore, they have become secretly poorer while the rich were able to buy many goods at pre-inflated prices; thus, becoming richer.
Reasons Dr. Paul should stress this concept:
1) It is an outrage! People hate when they are getting ripped off. (Liberals will love the poor vs. rich argument)
2) Very few people are aware of this deceptive process, and people love to learn new things.
3) The concept is not too difficult to understand. It should take less than a minute to explain and should be planned to be articulated very clearly (I probably didn't do the best job).
4) It will make RP appear very smart.
5) It will help people understand the Federal Reserve.
6) It will hopefully inspire further research and discussion.
Anyways, that is my spiel. I am sure most of you are familiar with this stuff (if not, look for "Economics in One Lesson" online), but many people are not! And the fact is, everyone should know about the destructive process of inflation. It is very difficult to explain the business cycle, the capital structure, and hard-to-follow malinvestment (which are things RP usually goes into). It is not nearly as difficult to become aware of the destruction of the middle class through inflation.
I would strongly suggest for Ron Paul to start pounding this issue.