{For writeup/video see http://bit.ly/AZmmai} Economists are trained to believe that inflation is caused by money. Therefore they think that global inflation today results from expansionary monetary policies followed in the past, to combat COVID and also the Global Financial Crisis before that. This is completely wrong. Global inflation today results from rising costs of production, due to various reasons explained in the slides. It has nothing to do with money and interest rates. The reasons for the wrong beliefs of Economists are also discussed. These have to do with the fact that false economic theories support current power structures, in particular the financial sector.

1. Photo 89192351 / Inflation © Andrey Popov | Dreamstime.com
Why Is Global
Inflation
Soaring?
Dr. Asad Zaman
For writeup: see: http://bit.ly/AZmmai
“Modern Money and Inflation” published in DAWN
22nd Nov 2022
THESE Slides: http://bit.ly/ssSGW

2. But, First: Why does
this matter?
Inflation creates misery for millions.
BUT, even worse, the Central Banks raise
interest rates to counter inflation.
The cure is worse than the disease.
High interest rates crash the economy, and
create unemployment on large scale, vastly
increasing the misery of the masses.

3. Economists do not Understand Inflation!

4. Monetarism: Money does not matter!
The Classical Dichotomy
Monetary Sector
Money only affects prices.
Real Sector
Output and Employment not
affected by money

5. Daniel Tarullo, x-Head
Fed Reserve
We do not, currently, have a
working theory of inflation!
See: http://bit.ly/weaCCT The
Class-Conflict Theory of Inflation

6. WHY? Milton Friedman:
Inflation is everywhere and
always a monetary
phenomenon.
DEAD WRONG, but widely
believed by economists.

7. Two Types of Inflation:
Demand Pull & Cost Push
• Expansionary monetary
policy can lead to increased
demand. If quantity of
production remains fixed,
prices will rise.
• But, inflation can also be
cause by increasing costs of
production. Prices are markups
over costs. This kind of
inflation has nothing to do with
money and interest.
• Increase in energy costs is
especially important, since it
increases costs of
transportation for all goods.

8. Economists Baffled by
Global Financial Crisis!
Monetarism: Money and Banks
do not matter – BUT they
cause GFC
Queen of England goes to
London School of Economics to
ask Why?
US Congress constitutes a
committee to investigate
failure of Economic Theory!
See: Quotes Critical of
Economics: http://bit.do/azquo

9. Monetarist Understanding
of Global Inflation
• Inflation is soaring around
the globe: WHY?
• Friedman: Inflation is –
always and everywhere – a
monetary phenomenon
• Search for monetary causes
for current inflation.
• But monetary policy is NOT
expansionary currently!

10. Where is the Monetary cause?

11. The Eureka
Moment!
No current monetary causes?? It must
have been due to expansionary
monetary policy in the past.
AHA! Hugely expansionary monetary
policy used to fight the Great Recession
2008.
Similar expansion during COVID crisis.
Chickens are coming home to roost!!
Bravo! Thank you, Friedman, for these
brilliant insights!

12. Absurd and Ridiculous
• Initial “Quantitative Easing” – the most expansive monetary
policy in history to combat the Great Recession, following
the Global Financial Crisis of 2007.
• Ben Bernanke, faithful follower of Milton Friedman, was
following Friedman’s diagnosis: Great Depression was
caused by failure of Central Bank to do sufficiently
expansionary monetary policy.
Quantitative Easing

13. Friedman’s
Failure
• Despite all these efforts, Great
Recession 2008 was more
damaging to more people than
the original Great Depression of
1929. See:
https://www.milkenreview.org/ar
ticles/was-the-great-recession-
more-damaging-than-the-great-
depression

14. Why Global
Inflation Today?
NOT due to money and interest!
But due to rising costs!
Why did costs rise?
Huge Drop in Demand in COVID-era destroyed global supply
chains.
When demand picked up, back to pre-COVID levels,
producers had to find alternative, more expensive
suppliers.
Rising Energy Costs Crippled European production (Ukraine
War)
US-China Trade Wars increased costs of production in both.
Rising Energy Costs

15. Why are Economists Blind to Role of Money?
Simple-minded theory of classical economics:
Fixed Goods – Double the Money leads to Double the
Prices
Leads to Classical Dichotomy – Money does not affect
production
BUT, what if doubling the money doubles the amount of
Goods?
Then there will be no effect on prices!

16. Keynesian Economics:
In depression, when unemployment is high, expansionary
monetary policy leads to jobs and increased production,
without increasing prices.
Keynes recommended use of monetary policy (creation
of money to support private sector jobs) and/or fiscal
policy (direct government creation of jobs) to create full
employment.

17. Key Difference between Keynes & Friedman
Friedman: Markets automatically
create full employment.
Keynes: NO. Governments must
intervene in markets to create full
employment.
Friedman is OBVIOUSLY wrong, and
Keynes is OBVIOUSLY right.
Why do Chicago School Economists
insist on ABSURD theories?

18. Keynesian Economics: Prosperity of Workers
DECLINE of %Wealth of Capitalists
Keynesian Era
Monetarist Era
Reagan-Thatcher

19. Ecnomics Theory as Ideology
http://bit.ly/AZetid
Monetarist Economists:
Ideological Tool of the Top 1% --
Supports increasing inequality,
and increasing exploitation of
labor
Brown Collar: FLAT wages. Green
Blue Collar (Supervisors). Blue
Capitalists. Black

20. Conclusions:
Modern Monetary Theory is heir to Keynesian intellectual legacy.
Substantial advances on Keynes.
Key Recommendation: Job Guarantee Program. Everyone who wants to
work, should be provided a productive job.
Where will money come from? Government can create money!
Won’t it cause inflation? NO, because extra money will be more than
offset by amount of output created by employment of the unemployed
workers.

21. Links to Related Materials
THESE Slides: http://bit.ly/ssSGW
Writeup: http://bit.ly/AZmmai
Romer: Trouble With Macro: http://bit.ly/RSRA05Romer
The Class-Conflict Theory of Inflation: http://bit.ly/weaCCT
Economic Theory as Ideology: http://bit.ly/AZetid
Quotes Critical of Economics: http://bit.do/azquo
ABC’s of Modern Monetary Theory: http://bit.ly/ABCmmt