Hooray for Jon Hilsenrath, the Wall Street Journal's chief economics correspondent.
Hilsenrath has done the world a favor by writing this must-read story on the Journal's excellent Real Time Economics blog: "What is Money and How Do You Destroy It?"
It's 2,129 smart, well-researched and deeply-reported words that anyone who's interested in how the economy really works should read.
In it, Hilsenrath deconstructs the many Republican presidential candidate criticisms of Fed Chairman Ben Bernanke's policies, which Newt Gingrich calls "the most inflationary and dangerous in history."
But he also delves into deeper historical, philosophical and economic questions such as:
What is money? (It's a medium of exchange).
How much money is out there, and what's it worth? (It's complicated as the vast majority of money in the US economy isn't paper or coins, but rather "a bunch of zeroes and ones, electronic accounts in computer systems that tally who owes what to whom," Hilsenrath writes).
How to know whether all the new electronically generated money is destroying the dollar? (The dollar's value has been "on a roller coaster" since the 2008 Great Recession, and today it's worth just about the same as it was just before the collapse of Lehman Brothers).
How has inflation fared under Bernanke's Fed? ("Inflation might take off and wreck the purchasing power of a dollar. But official statistics suggest it hasn’t yet happened," he writes).
The piece ends on a cautionary note about the dollar's more recent value, and as the point bears remembering I'll quote Hilsenrath in full:
Inflation-adjusted after-tax incomes per person today are lower than they were in 2006. People aren’t making enough money to keep up with even small increases in consumer prices. One critical question is how do we as a society raise real incomes?
The Fed doesn’t control this the way it controls inflation. Real, inflation-adjusted incomes are driven by worker productivity, education and the broader efficiency of the U.S. economy. This makes it a big economic challenge for the whole political system to understand and address.
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