The Recession

The Real Reason Government Wants to Tax Soda

| by Reason Foundation

The good news of deflation is starting to get around. At the Wall Street
Journal
's MarketBeat blog, Paul Vigna gets the shakes over the
Bush-Obama Administration's failure to destroy the dollar:

I think we're closer to deflation, both here and abroad, than most people
realize or care to acknowledge.

In fact, by some measures, we are experiencing it. But nobody wants to talk
about that, because deflation is about as big a threat to the economy as there
is, and to talk about it, to give it currency, is to court disaster. To the
ruling class, perception is reality.

The Fed remains determined not to let deflation take hold, because it knows
how dangerous it is, and apparently will spend any amount to prevent it. And
they should, because there is nothing that will wreck the recovery and the
economy like deflation. Ask anybody who lived through the Great Depression.

Consider this: what do you think the picture would look like had the
government not intervened with trillions worth of various stimulants? They did,
and despite that injection, the economy is still too close to deflation for our
comfort.

Thanks for showing up, Paul!

Vigna's amazement that the trillions of "dollars" worth of stimulant hasn't
been enough to stave off deflation is quaint, as is his assumption that we would
now be experiencing horrendous deflation if not for the burial of all that Monopoly
money. It's true that there's an apparent disconnect between the weakness of the
dollar in international currency markets and its strength at your local Safeway.
That's because the international markets are geared to respond to the sudden
appearance of vast oceans of U.S. government debt. But since, among other
things, this debt immediately gets bought by the Federal Reserve, no new money
is actually printed.

If, on the other hand, you are participating in the dollar-denominated
economy -- if you are spending actual dollars and nickels and quarters and all
those other trinkets that supposedly don't matter in this post-scarcity,
long-now age of abundance -- you are not willing to pay more than a dollar and a
half for a gallon of milk just because Ben Bernanke's friends are getting a lot
of free virtual money. Even Americans aren't that stupid.

There's a glaring error on page 2 of Das Kapital, in which the
father of modern mass murder tries to refute the classical economic idea of
relative value in favor of intrinsic value:

A given commodity, e.g., a quarter of wheat is exchanged for x blacking, y
silk, or z gold, &c. -- in short, for other commodities in the most
different proportions. Instead of one exchange-value, the wheat has, therefore,
a great many. But since x blacking, y silk, or z gold &c., each represent
the exchange-value of one quarter of wheat, x blacking, y silk, z gold, &c.,
must, as exchange-values, be replaceable by each other, or equal to each other.

The fault here is that obviously these other commodities are not of equal
value to everybody. A pre-industrial economy has no need of "blacking," a silk
exporter will value silk differently than a silk importer, and a society of meat
eaters may have no interest in wheat at all. (Goldbugs make the same error;
intrinsic value is a lie as bitter as love.)

It's perfectly reasonable that the dollar might hold different values for
different people. If you're trading vast quantities of the bullshit electronic
"dollars" being pumped into the economy, you're going to treat the buck the way
Bernanke and Geithner want you to treat it -- as a nearly worthless marker of
value. But if you actually work for a living, you know that the greenback has
gotten a lot harder to earn lately, and you are less willing to spend it.

If creating inflation were as easy as the Fed would like, or if avoiding
deflation were as important as Vigna thnks it is, then why does a two-liter
bottle of Coca-Cola cost today exactly what it cost during the Carter
Administration? For as long as I've been drinking Coke, a two-liter bottle has
cost about 99 cents at the low end to $1.50 at the high end. If you pay more
than that you're getting ripped off.

That's without inflation adjustment. They've tried changing the shape. They've
tried changing the formula. They've dumped Mentos into it. And yet if you go to
the supermarket right now, you will almost definitely find that they are
offering two liters of the Real Thing for $1.99 -- with a two-for-one purchase
offer. If thirty years ago you had taken $2,000, put $1,000 in one pillowcase
and used the rest to buy 1,000 bottles of Coke, the Coke would now be worth the
same amount as the money (though it might be a little flat). And it has
never gone to zero! Let's say that again: The price of Coke has
never gone to zero.

It's a good bet nobody planned for Coke to be the one commodity that tracks
the dollar precisely -- in fact, it does that because nobody planned
it. It costs what the market will bear -- a concept familiar to everybody who's
visited a yard sale, but alien to the government, the Federal Reserve, and
apparently the Wall Street Journal.