Because we think that higher oil prices caused double-digit
inflation in the 1970s, we fear it could happen again, Newsweek
contributing editor Robert J. Samuelson wrote in the October 31
magazine. The trouble with this impeccable logic is that the
underlying facts are wrong. Samuelson explained that rising oil
prices merely added to an already-problematic inflation level at the
time.
NBCs Brian Williams also hearkened back to the earlier
era on the October 14 Nightly News. Tonight, the lead story is
the economy, Williams said. It has to do with inflation, and the
news is bad. In fact, youd have to reach back to the Jimmy Carter
years to find a rate of inflation any higher than that announced
today Yet, in the report that followed, Tom Costello said that
while gas prices were a factor in peoples budgets, it is also true
that across the economy, inflation is relatively tame.
Costello was right. Free-market economist Larry Kudlow
detailed several reasons why todays situation doesnt resemble the
70s in a Washington Times column on September 8. For starters,
todays economy is growing and businesses are showing real profit
gains, while the 70s faced a recession. Now the United States
enjoys more than 20 years of deregulation, making the economy more
flexible and resilient, Kudlow said. The increased globalization
of communications and business keeps information flowing and prices
relatively low through competition.
The Worry of Energy Prices
Nationally, gas
prices have now dipped below pre-Katrina levels. But the recent
fluctuations in gas and crude oil prices have had the media in fits.
And they have warned that energy costs are causing general
inflation, even though gas prices alone have dropped 15 percent
since September 5.
CNNs Jack Cafferty said on the October 22 In the
Money: We got some inflation numbers on the radar that are
potentially troubling, energy prices feeding into those obviously.
CNN correspondent Christi Paul said on the October 18 Newsnight
with Aaron Brown that inflation had risen and Energy prices,
forced higher by the Gulf Coast, hurricanes, seem to be behind that
jump. ABCs Geoff Morrell said on the October 16 Good Morning
America that soaring gas prices drove inflation to its highest
monthly rate in 25 years.
On The Big Story with John Gibson October 5, Fox
News Terry Keenan followed the weather report with: a different
storm brewing, John. And this one is on the inflation front. Keenan
said that with rising oil prices and rising health care costs,
tuition costs, insurance costs I can go on and on inflation is
starting to percolate through the system.
The problem with those warnings, said Cato Institute
economist Alan Reynolds, is that they amount to a dangerous myth.
There is no evidence that energy price spikes have ever led to
higher non-energy inflation, Reynolds wrote in an October 20
column. In fact, Reynolds said, higher energy costs can actually
have a deflationary effect on most non-energy prices for
consumers. In a September 15 piece, he referred to his writings from
1974, when he said that if consumers pay more for gasoline, they
have less money left over to bid up the prices of other things.
CNNs Christine Romans and Andy Serwer attacked that
reasoning on the October 16 In the Money. In a discussion of the
Consumer Price Index, which revealed that general inflation was not
as worrisome as they thought, they distracted viewers from the
economic facts. Instead of explaining that price spikes in certain
sectors do not constitute general inflation, they insisted
otherwise. Romans said, What I think is interesting is that when
you strip out food and energy, CPI wasnt as bad as Wall Street had
thought and what I say, is can you strip out food and energy in your
budget? I dont think you can strip food and energy from your
budget. Serwer rejoined: I love the fact that economists dont eat
or drive. That always cracks me up. Its interesting, I think. There
is inflation and you know if the Federal Reserve is concerned about
inflation, why shouldnt we be?
Apparently, Serwer had already forgotten the lessons
that John Rutledge gave him on the October 8 edition of In the
Money. Rutledge, an economist and chairman of Rutledge Capital,
schooled the CNN team on inflation. CNNs Susan Lisovicz repeated
the familiar mantra that Inflation is coming from the higher energy
prices. But Rutledge said the Fed needed to let this price level
go up one time because inflation is held down by China, India
wages and prices.
Serwer pressed him: Come on, inflation is definitely a
problem. Theres no question that Katrina and Rita are causing
prices to rise. I dont see how you can say that inflation is not a
problem. I mean you see higher energy prices, higher gas prices.
How can you say theres no inflation? Rutledge answered: Andy, you
said two different things. You said theres an inflation issue and
there are energy raising prices. Those are different statements.
Rutledge explained that inflation originally meant
printing too much money and devaluing the currency. Thats not
whats happening now. He described price increases in various
sectors as one-time bumps and added that the Fed is not going to
make oil cheaper by tightening interest rates. Rutledge continued:
We have a $13 trillion GDP, we have a $155 trillion asset base in
the United States and no one, not Alan Greenspan, not the Federal
Reserve, not Katrina, not Rita, are going to knock that over.
