A “safe, flexible, and stable monetary and financial system” huh?

And now for another economic interlude. For some time now I’ve been fascinated with the seemingly unending upward trend of prices for things like health care, housing, and college. In my last post on the topic, I concluded that higher education’s problem was that it was tracking the ups and downs of the general rate of inflation, but higher. However, I realize now that I took it for granted that there was inflation. We all do. It’s viewed as a force of nature, simply there no matter what anyone does.

But how natural is inflation really? Most people living today have spent the majority or entirety of their lives during periods of sustained positive inflation, so they know little else, but has it always been this way? I set out discover the truth.

I first tried the Bureau of Labor Statistics, but they only track this stuff from 1913 onwards — the year the Federal Reserve was founded. I wanted data going all the way back. I found an academic paper that lists the historical rates of inflation and consumer price indices for 1774-2010, which was just what the doctor ordered. What time is is? That’s right, it’s GRAPH TIME!

Yearly inflation 1774-2010.png

Okay… well this must certainly tell us something, but it’s a bit hard to make out just what. I see a lot of inflationary spikes in the past but a lot of deflation too. The modern period seems to be marked by much more inflation and no deflation to speak of. Let’s see if I can find a way to visualize this data more effectively.

CPI 1774-2010.png

Gulp. That kinda brings it home a bit, doesn’t it? What astounds me the most is that a single dollar purchased roughly the same amount of goods pretty consistently from 1774 to 1913. That’s 140 years of fairly stable currency value. Wow. But after 1913 things started to change, and inflation really took off.

I blame the Federal Reserve. This is a topic for another post, but since its creation, the Fed has systematically devalued the dollar and ushered in an era of outrageous inflation. Don’t believe me? Just wait for these next two graphs. First, let me show you a graph of the purchasing power of a dollar prior to the creation of the Federal Reserve:

Price of a $1 1774 good pre-fed.png

…Now after the creation of the Federal Reserve:

Price of a $1 1774 good post-Fed.png

Now you begin to understand why the BLS only tracks post-Federal Reserve inflation figures: because of they showed the data from before the Fed was around, it would clearly demonstrate the utter failure of the agency!

Even more ironic is that the stated mission of the Federal Reserve is to provide a “safe, flexible and stable monetary and financial system”. After looking at that last graph, one can’t help but feel that the system was worlds more stable before the Fed started meddling.

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One response to “A “safe, flexible, and stable monetary and financial system” huh?

  1. Reblogged this on ctserf.

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