Bruce Bartlett, DC Report @ Raw Story

Predictably, conservatives are once again warning about inflation. This happens every time a Democrat takes office—even if he merely continues the identical policies of his Republican predecessor.

Unfortunately, these concerns, which always receive wide media attention, are costly both politically and economically.

Bill Clinton was forced to adopt a deficit reduction plan in 1993 that led to the defeat of many Democrats in 1994 and the installation of Newt Gingrich as speaker of the House.

Barack Obama was forced to scale back his stimulus plan in 2009 and was browbeaten into deficit reduction in 2011. That kept the economy running in slow gear throughout Obama's presidency paving the way for Donald Trump.

We have paid a heavy price for believing the conservatives who cried wolf about inflation year after year without any evidence supporting their predictions.

Now that Joe Biden has gotten his stimulus, the inflation-mongers are just getting started again.

Criticism of COVID-19 Relief

Sen. Rob Portman (R-Ohio), citing economist Larry Summers, offered a representative reaction in the wake of the American Rescue Plan Act's passage:

"America's economy is improving, and the nonpartisan Congressional Budget Office said recently that the economy will recover to pre-pandemic levels by mid-year without any additional stimulus.

"This makes it even more troubling that Democrats have passed this partisan and expensive bill that one prominent Democratic economist says could overheat an already recovering economy and lead to higher inflation, hurting middle-class families and threatening long-term growth."

It's been an article of faith among conservatives since the beginning of the financial crisis in 2008 that inflation is right around the corner.

This conviction follows from a core conservative belief that inflation invariably results from increases in the money supply. As Milton Friedman, the Nobel Prize-winning economist put it a half-century ago in an oft-quoted line: "Inflation is always and everywhere a monetary phenomenon."

Thus, when the Federal Reserve vastly expanded the money supply in late 2008, conservatives anticipated a sharp rise in inflation. It didn't happen.

Fixing the Financial Crisis

In 2009, many prominent conservative economists confidently predicted an imminent rise in inflation. Here's a representative sample:

• • John Taylor, Stanford: "There is no question that this enormous increase from $8 billion to $3,365 billion [increase in the money supply] will lead to higher inflation unless it is reversed."
  • Martin Feldstein, Harvard: "The unprecedented explosion of the US fiscal deficit raises the specter of higher future inflation."
  • Arthur Laffer, economic consultant: "To date what's happened is potentially far more inflationary than were the monetary policies of the 1970s."
  • Alan Greenspan, former Federal Reserve Board chairman: "Statistical analysis suggests the emergence of inflation by 2012."

Indeed, many Republicans predicted not just inflation, but hyperinflation.

• • Rep. Dan Burton of Indiana said: "We are heading toward hyperinflation again."
  • Sen. John McCain of Arizona said: "My great worry is that if we do not account for this debt in some way, if we continue trillions of dollars of unnecessary and wasteful spending, then obviously we will find ourselves back in the situation we were in the 1970s when we had hyperinflation and had to debase the currency."
  • Rep. Paul Broun of Georgia warned: "I think we're fixing to head for hyperinflation."

Yet, year after year, there was no inflation. In 2009 we saw prices fall slightly, the opposite of these predictions and warnings. The Federal Reserve couldn't even hit its own target of 2% inflation. The average inflation rate for 2009 through 2020 was less than 1.3% annually.

That did nothing to dislodge right-wing orthodoxy, however. Conservatives continue to say that inflation was right around the corner. No amount of empirical data could shake their deeply held belief.

A Decade Ago

On Nov. 15, 2010, a group of conservatives—including reputable economists such as Michael Boskin, Ronald McKinnon and John Taylor, all of Stanford, as well as various Wall Street analysts and journalists—published an open letter to Fed Chairman Ben Bernanke, a Republican originally appointed by George W. Bush. The letter said:

We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.

We subscribe to your statement in The Washington Post on November 4 that 'the Federal Reserve cannot solve all the economy's problems on its own.' In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.

We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

The Fed's purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.

Nevertheless, the concerns of conservatives were not absurd—up to a point. It was possible that the time lag between rises in the money supply and inflation had been lengthened by the recession. Unless the fundamental relationship between the money supply and inflation that every conservative had taken to heart in the 1970s was completely wrong, higher inflation was still in the pipeline.

The real problem was that none of the traditional indicators suggested anything like a serious inflation threat was on the horizon.

Years after the beginning of quantitative easing there were still no signs of inflation in any commonly used index and interest rates remain low. Even the price of gold, which many conservatives view as the most accurate measure of future inflation, has fallen sharply from its peak of close to $2,000 per ounce in late 2011 to about $1,200 per ounce in 2014 and about $1,700 today.

And Now

At this point, a reasonable person would be forced to admit that predictions of high inflation were based on faulty theory. Yet, few of those who signed the letter to Bernanke owned up to any doubts when queried by Bloomberg News in October 2014. It is worth quoting them at length.

—Jim Grant, publisher of Grant's Interest Rate Observer, in a phone interview:

"People say, you guys are all wrong because you predicted inflation and it hasn't happened. I think there's plenty of inflation—not at the checkout counter, necessarily, but on Wall Street.

"The S&P 500 might be covering its fixed charges better, it might be earning more Ebitda [earnings before interest, taxes, depreciation and amortization], but that's at the expense of other things, including the people who saved all their lives and are now earning nothing on their savings."

"That to me is the principal distortion, is the distortion of the credit markets. The central bankers have in deeds, if not exactly in words — although I think there have been some words as well — have prodded people into riskier assets than they would have had to purchase in the absence of these great gusts of credit creation from the central banks. It's the question of suitability."

—John Taylor, professor of economics at Stanford University, in a phone interview:

"The letter mentioned several things – the risk of inflation, employment, it would destroy financial markets, complicate the Fed's effort to normalize monetary police – and all have happened."

"This is the slowest recovery we've ever had. Working-age employment is lower now than at the end of the recession."

"Where is the evidence that it worked? It's just not there."

—Douglas Holtz-Eakin, a former director of the Congressional Budget Office, in a phone interview:

"The clever thing forecasters do is never give a number and a date. They are going to generate an uptick in core inflation. They are going to go above 2%. I don't know when, but they will."

—Niall Ferguson, Harvard University historian and author of The Ascent of Money: A Financial History of the World, referred Bloomberg News to a blog post he wrote in December 2013, saying his thoughts haven't changed:

"Though generally regarded by a cause for celebration (even by those commentators who otherwise lament increasing inequality), this bull market has been accompanied by significant financial market distortions, just as we foresaw."

"Note that word 'risk.' And note the absence of a date. There is in fact still a risk of currency debasement and inflation."

—David Malpass, former deputy assistant Treasury secretary [now president of the World Bank], in a phone interview:

"The letter was correct as stated."

"I've observed that credit is flowing heavily to well-established borrowers. This has worsened income inequality and asset inequality going on in the economy. You're looking at the companies that got credit. The problem is the new businesses that didn't get credit. The facts are that private sector credit growth has been slow. It is a zero-sum process where each corporate bond issue was money that otherwise might have gone to a new business or a small business."

—Amity Shlaes, chairman of the Calvin Coolidge Memorial Foundation, wrote in an e-mail:

"Inflation could come, and many of us are concerned that the nation is not prepared."

"The rule with inflation is 'first do no harm.' So you always want to be careful."

—Peter Wallison, senior fellow at the American Enterprise Institute, in a phone interview:

"All of us, I think, who signed the letter have never seen anything like what's happened here."

"This recovery we've had since the end of 2009 has been by far the slowest we've had in the last 50 years."

—Geoffrey Wood, a professor emeritus at City University London's Cass School of Business, in a phone interview:

"I think everything has panned out. We should probably be more cautious about the timing. Economists should always be cautious about the timing. Timing is close to totally unpredictable."

"The economy is growing. If the Fed doesn't ease money growth into it, inflation could arrive."

—Richard Bove, an analyst at Rafferty Capital Markets LLC, in a phone interview:

"If interest rates are low, it means a large portion of the population was made poor because passive income declined."

"If you take a look at the economy, I think that the economy has grown in line with the growth in population and the growth in income. I would argue that the bulk of this QE money never reached the economy."

"Someone's got to prove to me that inflation did not increase in the areas where the Fed put the money. We know where they put the money. And we know where they put the money prices went up dramatically. And we also know the consumer price index does not pick up either of those price increases. Housing prices are not in the CPI and fixed income prices are not in the CPI. So how do you know that QE benefited the economy?"

It's now 2021 and none of these dire inflation predictions from 2010 or 2014 has come to pass.

I don't know if there has been a permanent change in the relationship between the money supply and inflation, as some advocates of Modern Monetary Theory (MMT) claim.

But I do know that we have paid a heavy price for believing the conservatives who cried wolf about inflation year after year without any evidence supporting their predictions.

At the very least, we should treat their current concerns with deep skepticism. And they should admit they were wrong in 2010 and 2014 and offer some explanation for why. I've never heard one.

I was a card-carrying conservative for many years. Working in the Reagan White House when Rush Limbaugh went on the air in 1988, I ran out to buy a desk radio so I could listen to him daily.

Even then, however, I didn't care for his callers—I thought they were ignorant, obsequious fools. But I liked Limbaugh's monologues at the top of the hour because I learned useful stuff from him. Cancer silenced Limbaugh on Feb. 17.

I know many liberals will disagree with me on this, but in 1988 there really was a liberal media. I found it very hard to get honest-to-God news that interested me as a conservative, even as a White House staffer. It had to be sought out in small-circulation magazines like Human Events and National Review or from the very few conservative columnists in major newspapers.

When the established media lost its gatekeeper function, it led to a vast proliferation of crackpot ideas that circulate unimpeded today.

I didn't need validation of my views, as was the case with many grassroots conservatives. I wanted intellectual ammunition I could use to design and promote conservative policies in government. Contrary to popular belief, the Reagan administration took analysis and research seriously.

Unlike the Trump White House, which often sent out documents with typos in them (a firing offense when I worked there), the policy development process in the Reagan White House was reasonably competent.

A key reason for making sure that there were proper analysis and documentation for administration proposals is that they would have been picked apart in the media otherwise. Not only was the American press generally skeptical of our philosophy, but it was exponentially more powerful in those days and could make or break a policy proposal very easily.

Frankly, I think Democrats on Capitol Hill, who controlled the House of Representatives during Reagan's entire eight-year term, tended to outsource their criticism of Republicans to The New York Times and The Washington Post.

Beat reporters for the major newspapers were gatekeepers, refusing to even mention any proposal or idea that was insufficiently worked out, lacked empirical data or academic support or just seemed stupid. Back when I worked for Jack Kemp, it took me years to get The Wall Street Journal tax reporter to mention Kemp's tax cut plan—even after it had been endorsed by the Journal's editorial page.

Liberal Media Rules

And in those days before the internet, politicians were very heavily dependent on the mainstream media to get out their messages. About the only other way of doing so was direct mail. But printing and mailing newsletters was very expensive, and it took an enormous amount of effort to build a mailing list.

Like it or not, conservatives in the pre-talk radio, pre-Fox News, pre-internet era had to work through the liberal media and play by its rules.

Rules of the once-dominant mainstream media were mostly good. When the established media lost its gatekeeper function, it led to a vast proliferation of crackpot ideas that circulate unimpeded today. Even members of the prestige media have found themselves unable to keep nutty conspiracy theories from affecting their reporting as they document what is motivating Republican voters and politicians. But in reporting the existence of crackpot ideas and fake news, the mainstream media implicitly validates them and publicizes them.

When Limbaugh first went on the air, he was a breath of fresh air for conservatives—even those working in the White House. He was an essential source of news. As all of his listeners know, Limbaugh hoarded a "stack of stuff" consisting of news clippings, press releases, faxes and whatnot that caught his eye and formed the basis for his monologues.

He was as much a news consolidator and reviewer as he was a commentator in those days. And he frequently had an intelligent spin on the news, often picked up from the many politicians and policymakers he talked to off the air.

Master of Radio

Of course, Limbaugh was also a blowhard, and his massive hubris was off-putting. But it was part of his schtick and one of the reasons he was popular. Say whatever else you like about him, but Limbaugh was a masterful radio personality. He really understood and loved the medium. His foray into television just didn't suit his style and was soon abandoned.

As is well known, what made Limbaugh's breakthrough moment possible was the abandonment of the Fairness Doctrine by Reagan's Federal Communications Commission in 1987. Previously, the expression of political opinions on television or radio required that time be provided for differing opinions. Since this was costly, it was easier for stations simply to present no opinions at all.

Those who want to bring back the Fairness Doctrine often fail to note its limitations. It applied only to over-the-air broadcast channels. It didn't apply to newspapers, magazines or cable television, which was already becoming a force. CNN went on the air in 1980. Naturally, it did not apply to the internet or any of its content.

Moreover, the Fairness Doctrine was under heavy legal assault as an infringement on the First Amendment. Personally, I think it was inevitable that the Fairness Doctrine would have been killed by the Supreme Court if it hadn't been repealed.

Savior of AM Band

The abandonment of the Fairness Doctrine coincided with more sweeping changes in the radio market. For some years, the AM band had been in decline as people switched to FM, where sound quality was better for listening to music.

But the AM band was perfect for talk radio, and that became its financial savior. Once Limbaugh showed how profitable talk radio could be, it took over AM radio, where it appealed to a certain demographic of working men and women and others who liked listening to the radio while they worked.

One reason I enjoyed listening to Limbaugh is that I had his private email address. Oftentimes, while he was on the air, I would have some thought or an obscure fact that fit with whatever he was pontificating about. Literally within minutes, I would hear him repeating what I told him. It was exhilarating.

Perhaps the most important long-term effect Limbaugh had on the media is that his success helped convince Australian press baron Rupert Murdoch to launch Fox News. Longtime Republican political consultant and television producer Roger Ailes drew up the plans for Fox and helped Limbaugh go national with his radio show. (For almost 20 years before meeting Ailes, Limbaugh had labored in the vineyards of small radio stations in Kansas City, Sacramento and elsewhere.) Without Ailes's help, Limbaugh would have never become what he was.

No One on the Left

It's also well known that liberal commentators have never been able to duplicate the success of Limbaugh. Even Al Franken, a skilled entertainer with deep political knowledge, failed to find an audience for a contra-Limbaugh radio show. I think the reason for this failure is simpler than it appears: Progressives already have their own talk radio network with a broad reach—National Public Radio. It's not as ideological as conservative talk radio, of course, but NPR produces exactly what liberals want radio to do, and it does so very, very well. Moreover, I think liberals are basically content with the mainstream media: The New York Times fulfills their news needs almost perfectly. That's why they get so upset when it strays from the liberal path by publishing conservative commentary.

In truth, the Times attracts precisely zero conservative subscribers by publishing the likes of Bret Stephens. I know this from many years in the conservative movement. I even remember the first moment when I realized how closed the conservative mind had become.

It was in 2004. As I have mentioned earlier, I had been quoted extensively in an article by the Pulitzer Prize-winning journalist Ron Suskind that ran in the Times magazine. When I asked my conservative friends what they thought of it, they universally said that they never read that leftist rag. I was shocked because I had built my career on getting stuff into the Times and had gotten pretty good at it.

I stopped listening to Limbaugh and watching Fox News in 2006, as I was beginning to shift my perspective leftward. I didn't do this so much because I no longer agreed with their ideology, but because I disagreed with their news judgment. I found myself paying attention to stupid memes circulating on the right that did not deserve any attention at all.

One of the most important things Fox and the rest of the right-wing media do is establish priorities—telling their audience what is news and what isn't. To this day, I'm not sure if Fox viewers even know what happened on Jan. 6 or that Donald Trump was impeached for it.

Even before Limbaugh's death, there were press reports indicating that right-wing talk radio was dying. (And Fox's ratings are also collapsing.) I seriously doubt that the Limbaugh phenomenon can be duplicated, although his syndicator will undoubtedly try. I suspect that AM radio will find something other than right-wing outrage to sustain it in the post-Limbaugh era—though what that proves to be is likewise far from clear at the moment.

Bruce Bartlett is president of the DCReport board of directors.