Roxane Googin: Mike Lee’s economic education is lacking

Sen. Mike Lee made several points clear in his debate with Evan McMullin on October 17. All of them are questionable.

One point was that our inflation and gas price problems would be solved if only we vote Republican. Only then would we have the Republican majority needed for, um, what? Lower gas prices and lower inflation?

No over-arching end goal or policy roadmap was ever mentioned. In this scenario, apparently working across the aisle to actually solve the problems facing us is not his strategy. Perhaps he thinks health care and housing are affordable, our schools are safe from gunmen and our climate is under control.

A second point he made is that our water supply problem would be solved if only we used our public lands differently; as though the problem of empty lakes will be solved by building more empty lakes, rather than by reviewing water use as our rains dry up. It seems that Mike Lee has rarely come across a problem that could not be solved by raiding the public lands that he does not own.

But his third point is just plain wrong. He kept quoting Nobel Prize laureate Milton Friedman as saying government spending causes inflation. He followed by blaming Democrats for over spending.

Perhaps he thinks the Iraq and Afghanistan wars were free, or spending is only bad when it is on the welfare of fellow citizens. Maybe he has not updated his facts since the 1970s post Vietnam inflation spurt.

At any rate, he has not paid much attention to the actual Milton Friedman. This is what Friedman actually is famous for saying: “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

One problem for Mike Lee is, the money supply is not generated by government spending. Another problem is the government does not control the supply of goods. Oops.

The money supply is actually generated by the Federal Reserve in a complex chain of events whereby they raise or lower interest rates and reserve requirements on banks in order to impact lending. They can also buy Treasury bills in a more complex “Quantitative Easing” measure. However, it is essentially bank borrowing by end users that “creates” money.

The Fed and the banks work together to increase available credit, which when borrowed against, increases the money supply. Importantly, the Federal Reserve is an independent body, albeit one that does experience political pressure. They would act in a similar manner under Republican administrations. Every junior banker knows this but, apparently, not Mike Lee.

One problem we are currently facing is supply shortages stemming from COVID-related shut-downs hitting just when COVID-related money supply growth still allows more spending.

Yes, the Federal Reserve created more money supply during COVID so that the economy would not collapse. Without extra liquidity providing business lifelines during our shut-downs, innumerable small businesses would have run out of cash and closed forever, creating a decades-long recovery process rather than a short inflation spurt.

Perhaps they created a bit too much credit. Perhaps Lee prefers the risk of a lost decade of depression to an inflation spurt.

Looking forward, as supply chains recover (and output grows), while individual consumer bank balances get drained from spending (and money supply declines), supply and demand should converge and the situation should improve.

In fact, leading indicators of supply chain input prices already point in this direction. Input prices are declining as supply begins to outpace demand in most areas x-energy, and that will eventually show up in “inflation” as measured by the Consumer Price Index.

It would be nice if Sen. Lee actually understood the mechanics of how his key platform agendas work.

Roxane Googin, MBA, Park City, is a retired stock analyst.