Inflation has reached its highest level in nearly 40 years, and everyone is looking for answers. Before fiscal and monetary authorities can muster a policy response, we need to understand what is causing inflation. Unfortunately, the leading explanation on offer from progressives won’t help. Senator Elizabeth Warren has blamed rising gas prices on price-gouging and the high cost of holiday turkey on “plain-old corporate greed.” Presumably, inflation has been low for 40 years because greed has been low. Even the independent Federal Trade Commission, led by progressive Lina Khan, is launching an investigation into whether prices are rising because of anticompetitive behavior.
Basic economics should temper their zeal. Why should politicians or bureaucrats have a clue about why prices are rising? Even people who directly participate in the markets often don’t understand the forces driving their own behavior.
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