Starr expects inflation this year, although he thinks it will drop in the subsequent year or two. James Hamilton of the University of California, San Diego, also expects inflation. “The ethanol program is one factor driving up food prices in the U.S. and the rest of the world, and low interest rates have encouraged commodities speculation,” says Hamilton. “There is a contribution of U.S. policy in these global problems — an unwise policy on our part. It doesn’t make sense to drive cars powered by corn, and it doesn’t make sense for the Federal Reserve to drive interest rates as low as possible as quickly as they have.” Excessively easy money and credit can boost inflation.
For one thing, lower interest rates make it less expensive for commodity speculators to hold larger inventories of oil and grain. For another, the rise in the price of oil — caused greatly by lower interest rates and a weak dollar — makes it more profitable for farmers to grow corn for ethanol. And that causes all kinds of shortages and market distortions.
Phillips says that the falsifying of the consumer price index evolved gradually under both Democrats and Republicans. One economist calls the phenomenon “Pollyanna Creep.” The phony numbers have “had a hand in the abetting of political dishonesty, reckless debt, and a casino-like financial sector,” says Phillips. Those are the woes that are burying us. And contributing to food riots abroad.