Bessent vs Warsh: A Misunderstood Inflation Narrative

The recent controversy surrounding Scott Bessent's comments on monetary policy at the Jackson Hole conference has sparked debate about the Fed's role in managing inflation. Historically, inflation refers to a shrinkage of the monetary unit, but economists have perverted this definition to view it as an effect of 'too much' economic growth.

The Federal Reserve is the largest employer of economists worldwide, and their influence on the narrative surrounding inflation cannot be overstated. Notably, conservatives claim that Kevin Warsh's Fed is targeting a 'strong dollar,' but what they mean by this is a dollar that's rising against foreign currencies and stable versus gold.

However, Warsh has not commented on the dollar's exchange value since taking over the Fed, which is crucial because the dollar's exchange value isn't part of the Fed's portfolio. This means inflation has never been part of the Fed's policy portfolio, as Treasury is responsible for managing the dollar.

Economists have repeatedly misunderstood the relationship between economic growth and prices, viewing rising prices as a sign of 'inflation' rather than recognizing that a rising price signals a falling price. The surest sign of economic growth is actually falling prices, as productivity advances lead to lower prices for formerly expensive goods.