Recommended Reading- Inflation: A Guide for Users and Losers

This book is a worthy read for people who want to understand inflation, as opposed to simply yelling at it. It is authored by two economists, Mark Blyth and Nicolo Fraccarolli.

What was gratifying for me personally was that the book's introduction tagged themes I've been hammering at on this site and my LinkedIn postings for some time.

Just a few examples:

• Everyone experiences inflation differently. The authors take this a step further: there are winners as well as losers from inflation, i.e., those who hold assets with loans attached to them who can repay in deflated dollars while the asset's price rises.

• Rate policy to restrain inflation can be ruinous for large swaths of the population. In fact, tax hikes would probably be just as effective, if not more so, in curbing asset inflation, but it's the poor who bear the brunt while the rentier class reaps the rewards.

• On that note, inflation is preferable to producing unemployment to "slow the economy."

• The Federal Reserve cannot build more houses.

• You cannot eat a house.

• Inflation is not always a "monetary phenomenon," to quote the tired old Milton Friedman trope. In fact, it's often just a commodity bottleneck with someone's foot stepping on the hose.

• Different episodes of inflation have their own set of inputs, can't be assigned to one factor, and reliving the trauma of the 1970s is bound to lash policy makers to the wrong cure for a different inflationary construct.

• Debunking "stimulus checks" as a cause of inflation. All anyone needed to do was observe the dates the checks were issued, and they too, realized that the funds were heavily used to deleverage personal debt, not fuel a spending binge.

• Just measuring inflation is something of a fool's errand. As I've pointed out, even if CPI was at zero, prices within the CPI basket still move up and down, and the individual commodities in the index are weighted by factors that don't conform to people's actual consumption habits. Inflation, therefore, is highly subjective.

The book reviews the history of hyperinflationary episodes like interwar Germany and Zimbabwe, and you'll find these are unique moments in history that aren't attached to our own experiences. Unfortunately, that won't stop the alarmism from some quarters.

One thing I didn't know is that from 1953 to 1983, CPI included house prices. After that, the infamous Owner's Equivalent Rent metric was inserted. This was a bit of policy sleight-of-hand. Since many pensions and public benefits are tied to CPI, and house prices were rising fast after Volcker's rate climbdown, something had to be done.

Once again, the act of actually measuring inflation itself is tricky, and can be overstated or understated, depending on who you are and the state of your own finances.

This is a great book for the layman who wants to be brought up to speed on the topic. No Greek formulas, no esoteric jargon. It forces you to dissect inflation and its effects, what they mean for you and the general economy.

Best of all, it IS a book. Most of us have fallen into the rut of consuming information in small snippets, never investing the time to have a subject fully explained in an ordered fashion. Taking a couple of hours to get your arms around a subject inoculates you against the daily barrage of noise (and substandard reportage) we're subjected to. A full meal instead of constantly snacking on bites of junk.

We could use more books like this that can dissect a complex subject in terms that are easy to understand. With both authors being academics, that alone might be considered something of a feat!

June 2, 2025