The Christian Science Monitor: “No, Chinese inflation isn’t a good sign”

Experts say that Chinese inflation is a natural side effect of a healthy economy. Here’s why they’re wrong, acccording to “Guest Blogger” Joseph Salerno, a professor of economics in Pace’s Lubin School of Business.

The Christian Science Monitor writes that it has “assembled a diverse group of the best economy-related bloggers out there – “The Circle Bastiat” – and we are proud that Lubin’s Joseph Salerno is one of them!

Dr. Salerno’s most recent article focused on inflation in China. It is embedded below, or read it online.

No, Chinese inflation isn’t a good sign

Experts say that Chinese inflation is a natural side effect of a healthy economy. Here’s why they’re wrong.

By , Guest blogger / April 10, 2012

Well, well, well, the Chinese economy is experiencing inflation. Overall consumer prices rose by 3.6 percent in March 2012, year-over-year, including an upsurge in food prices of 7.5 percent. Even the prices of venerable Chinese herbal medicines took an upward leap of 8.3 percent. According to a CNNMoney report, inflation is “the price of prosperity.” The report goes on to fatuously instruct us, “While inflation poses challenges for consumers, it is the byproduct of one of the most robust economies in the world.” A comparison of China’s 9.2 percent real GDP growth in 2011 with the paltry 1.2 percent growth rate for U.S. real GDP in the same year is thrown in as supposed proof of this statement.

But this is utter nonsense and one of the most deeply entrenched myths in both academic economics and media commentary. Basic economic theory demonstrates that “economic growth,” which is nothing but  an increase in the supplies of various goods and services, is in and of itself deflationary. An increase in the supply of any good (or service), with the supply of money and all other factors fixed, results in a fall in its price and a growth in its sales, as the excess supply of the good drives the equilibrium price down and expands the quantity demanded. This irrefutable economic truth has been illustrated time and again since the late 1970s by sharp declines in the prices of items like personal computers, video game systems, HDTVs, digital cameras, and cell phones and of (uninsured) medical procedures like Lasik eye surgery and cosmetic surgery. Furthermore, this fall in prices has not caused stagnation in these industries but has instead coincided with their rapid expansion. I have explained this phenomenon of  “growth deflation” in more depth elsewhere.

What then is the cause of the accelerating Chinese inflation? We need look no further than the money supply. The broad measure of the Chinese money supply, M2, which includes currency in circulation and all bank deposits, increased by 13.6 percent in 2011, although the People’s Bank of China had targeted a 16 percent increase. The PBOC has announced that it will set the money supply growth rate at 14 percent for 2012. This inflation targeting policy, so beloved by contemporary macroeconomists, augurs more rapid price inflation for Chinese consumers for years to come. More important,  China’s long-standing super-loose monetary policy means that inflationary credit expansion has fueled a great part of the rapid growth of the Chinese economy, which is therefore unsustainable and doomed to collapse. Indeed, the pace of Chinese economic growth has already begun to falter in the last two quarters. In response, the PBOC has already cut reserve requirements twice in the last three months.

Having allowed the inflation tiger out of its cage, the Chinese government is now desperately hanging on to its tail. It must either cage the tiger forthwith  and confront the damage it has already wreaked in the form of a collapse in its economic growth rate; or it must inevitably lose its grip and permit its burgeoning market economy to be devoured by the beast in an inflationary breakdown and reimposition of direct controls.

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers’ own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger’s own site by clicking on blog.mises.org.

The Christian Science Monitor: “Tony Awards 2011: It’s a boy’s life?”

Male-focused and male-written shows dominate this year’s Tony nominations. Most went to Americans who have won before, changing trends that rewarded Brits and newcomers.

But despite the glaring deficit of women, particularly in the writing category, the Tony nominations reveal heartening trends, especially in the musical theater realm, says Robert Meffe, director of the BFA musical theater program at Pace University.

For one, they’ve gone native.

In the musical categories, especially for best musical, Professor Meffe sees a new and exciting trend in that the four new musicals were written by established American musical theater composers. Each of these composers has won Tony Awards for their previous shows, he said.

“This was commonplace in the 1950’s and 1960’s during the age of Rodgers & Hammerstein, but it has mostly been supplanted in the 1980’s by British productions (like the Andrew Lloyd Webber behemoths) and then more recently, by composers taking their first crack at Broadway shows,” he says, pointing to “In the Heights,” and “Avenue Q.” He notes that while the favored winner (“The Book of Mormon”) is partially written by the South Park crew of TV fame, Robert “Bobby” Lopez, composer of “Avenue Q,” is their third co-writer. The very short list of revivals – only two, this year – is a sharp departure from the conventional wisdom that audiences only support what they know, notes Meffe.

Musical theater will always have to argue for its relevance, Robert Meffe says in an article in The Christian Science Monitor, but Fox’s “Glee” and Disney’s “High School Musical” have brought a new high point of popularity. The audience for musical theater is younger than it has been in decades, he adds, and the box office bears that out: gross revenues have broken records in most of the previous eight seasons.

Furthermore, musical theater college programs have witnessed a sharp increase in demand and enrollment in over the past few years, he says.

“This spring at Pace we auditioned over 300 people for the 25 open slots in our class of 2015,” says Meffe, director of Pace’s BFA musical theater program. “This is in a program that started out eight years ago with six students.”