Here is the letter Axios:
Editor:
According to Emily Peck, “greed” is finally getting the attention it deserves to explain inflation.Once the fringe theory ‘greed’ gets what it deserves” May 18) Renamed “seller inflation” to avoid critics who rightly argue that there is no reason to think that corporations will be greedier in the near future, this ‘theory’ says that today’s inflation is caused by greedy inflation by firms raising prices to cover their profits. .
Alas, Ms. Peck is confused on many details, but one confusion looms above all: she ignores the economists’ theory of inflation. This widely and long-accepted concept – colloquially called “demand-pull” – explains inflation as an increase in the money supply relative to the demand for money. With excess cash, buyers play the prices on the board. All sellers can charge high prices only because the monetary authority has injected excessive spending power into the economy.
For the theory of “seller inflation” to work, it needs to explain observed inflation better than the demand-pull theory. Again, Ms. Peck compares “seller inflation” not to the demand-pull theory, but only to the long-accepted inflation theory. Indeed, “seller inflation” is nothing more than a new twist on the “price-push” concept.
It is true that inflation is caused by rising wages and the cost of inputs driving up the cost of goods. But there is no evidence that today’s rise in inflation is due to sellers’ greed driving up commodity prices. No matter how much sellers ‘greed’ for higher profits, consumers cannot pay higher prices without more money across the board – more money pumped into the economy. At the Federal Reserve Just as the rate of inflation increased. Sellers are raising prices across the board simply because the Fed is increasing the money supply, giving consumers more money to spend.
Ms. Peck concludes that because wage increases and input prices do not explain today’s inflation, today’s inflation is explained by corporate greed. This reasoning makes no more sense than the conclusion that since Lamarck’s theory of evolution does not explain the physical and behavioral characteristics of living organisms, these physical and behavioral characteristics are explained by creation.
best regard
Donald J. Boudreaux
Professor of Economics
And
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
