Why Yellen and Bernanke Should Be Sleeping Better

Consumer prices rose in March at an annual rate of 2.4%, according to the BLS. As a writer at Bloomberg News reveals, "The Fed’s goal of 2 percent inflation has proved elusive as the economic expansion was slow to gain momentum." The writer reminds us that the goal of the Fed is to perpetually shrink the purchasing power of the dollar. She also reveals the standard Keynesian mindset that economic progress means higher prices due to the economy being "overheated." In fact this could not be farther from economic reality. Economic expansion, by definition, means increases in output. As the supply of various goods increases relative to demand, their prices fall not increase, as more eager sellers bid down their selling prices. Economic expansion makes society better off, because consumers enjoy the opportunity to buy more goods at lower prices. All of us, thereby have the ability to achieve more of our ends. If prices are on the rise--and they are--this is due to the Fed's bankrolling monetary inflation, not due to any real recovery.