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Are there journalists or editors at The Economist who read EconLog? Or perhaps they have not lost all their classical liberal heritage, as the venerable magazine was created to advocate the abolition of the protectionist Corn Laws in the mid-19th century? Anyway, I do hope I am not outing anybody who worked on the article “‘Greedflation’ Is a Nonsense Idea” in the July 6 issue.
I believe the authors should have elaborated on the idea that “[w]ith too much cash chasing too few goods, it was inevitable that companies would make more money,” which refers to the inescapable monetary theory of inflation. They could also have explicitly mentioned the difference between inflation and relative prices. Yet, my goal is not to criticize them (for the Nth time, a story of love and hate as I previously explained), but to praise them for explicitly expressing a basic economic idea that seems to be very mysterious for most of our contemporaries, including for many journalists and even the financial press. The Economist writes:
Regardless, the fact that companies raise their prices in response to shortages is not only defensible but desirable. The alternative to letting the price mechanism bring supply and demand into line is to rely on something worse, such as rationing or queues.
With some knowledge of economics, there is a good future.
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