Inflation: Meet Stein’s Law | The American Spectator

Now, I put on my economist’s hat and talk to you nice people about inflation.

It does not take Adam Smith or Frank Knight to know that we are in a painful inflation. Anyone who buys eggs or gasoline or apple pie knows. Your humble servant sees it clearly and unhappily when I stroll down the aisles of my nearby Pavilions, a truly fine grocery store with great meat, fish, eggs, and everything else at what I had always thought were fair prices. (RELATED: Inflation, Houses, and You)

Apple pie prices have doubled in one six-month span. There is no shortage of apples or flour or anything else that goes into that pie. Eggs have doubled, and there’s no shortage of hens or meal. Sole has risen by almost 50 percent in a year.

We don’t really know why. We don’t know why inflation has exploded like a nuclear bomb. But we do know that when it starts, it is extremely hard to stop.

I have some personal knowledge of this. My wonderful father, Herbert Stein, then chairman of the President’s Council of Economic Advisers, in 1971, was in charge of the White House’s war against prices. The Congress, heavily Democrat, was demanding wage and price controls. Arthur Burns, Chairman of the Federal Reserve Board, although a fine economist, was also calling for legislative wage and price controls. My father was strongly against government wage-price controls, but when Mr. Nixon asked him to supervise the war against rising prices, he did not feel he could refuse.

As he told me at the time, he was afraid that if a man or woman who was not against controls was put in charge, we would never get out from under them. My father would look for any way to go back to free markets.

The beginning was called “Phase One.” A bureaucracy would set prices and wages for six months or so. Amazingly, it worked well at first but then started to get worn out around the edges. My Dad left the apparatus as soon as he could. But prices and wages still stayed low and did not rise dramatically when Phases two and three went into effect.

There was, at all times under my father, tight monetary policy. When RN was hounded out of office in 1974 and Mr. Ford took the Oval Office, prices and wages did not skyrocket. “WHIP INFLATION NOW” was a joke. But still inflation stayed modest. (RELATED: How Richard Nixon Became Cool Again)

What does this tell us? Much more than I can say now. But one thing we learned is that a government-administered jolt into the free market can have immense effects that last a long time. Free markets are terrified of a Gestapo-like control of those markets. They will bow and scrape for months and years.

I don’t think we know even now whether the markets stayed low for fear of the Fed, for fear of stricter government controls, or for fear of higher interest rates and tighter money.

But we do know that inflation, like everything else, obeys “Stein’s Law.” That is, “If a thing cannot go on forever, it will stop.” And, Pop, you were much more wise than you knew.

READ MORE from Ben Stein:

A Letter to My Favorite Grocer

Inflation, Houses, and You

Indispensable Lessons From My Life