We've Seen This Movie Before

Inflation is a destructive distorter. it fuels speculation and hoarding, as well as misdirects investment into normally uneconomic activities or stops the flow of productive investment altogether as people and businesses clutch their cash. The political mood sours as prices go up and particular industries are harshly hit.

We now see all of this unfolding. The dollar debasement that the Federal Reserve began in 2004 and exacerbated in the aftermath of last summer's credit crisis is wreaking the havoc history told us it would. The world, as the media constantly report, is experiencing a shortage of food, and even when food is available, the rising prices are rendering it unaffordable to the poor. President Bush has announced an emergency food-aid package for hard-hit parts of the world.

Rants against speculators are growing louder and shriller. Oil's current crazy prices are not because of supply and demand; with the slowdown in global economic growth, oil inventories are doing quite nicely. So suspicion of market manipulation grows.

The airline industry, despite usually loaded planes, is drowning in red ink because of rising fuel costs. To break even, major carriers will have to cut their capacity by 20%. The auto industry is reeling. Buyers are suffering from gas-price sticker shock and are sitting on liquid assets until they get a better fix on where the economy is actually going.

Congress is full of proposals to tax windfall profits. On Apr. 30 the Wall Street Journal ran a front-page headline about how "big agriculture" is making money hand over fist while the specter of hunger and malnutrition stalks the globe. Food shortages are being blamed on our binging on corn-based ethanol. But almost every other food commodity price is far, far above what it was last summer.

The political mood will get uglier when higher energy costs are passed on to consumers in higher electricity bills this summer.

Amazingly the roles of the Fed and other global central banks in all this are almost entirely ignored. John Maynard Keynes' 1919 observation still holds true: When inflationary forces are unleashed and the destruction is felt, not one person in a million will understand the inflationary process in play.

Inflation accounts for at least half of the price of oil today. We are not running out of the stuff. Recently an oilfield was discovered off the coast of Brazil that could hold as much as 33 billion barrels of oil. There are tens of billions of barrels of oil--not to mention gobs of natural gas--off our own coasts, yet Congress has declared 85% of the U.S. Outer Continental Shelf off-limits to exploration and drilling.

The dollar is the global currency (at least for now). When it falls in value the nominal price of commodities zooms up, with the poor being hurt disproportionately. When prices go up, people figure they better start storing foods and precious metals. Such hoarding worsens the situation.

The inflation-racked 1970s saw one commodity shortage after another. Johnny Carson, then king of late-night TV, jocularly warned of an impending shortage in toilet paper. The next morning millions of people cleared store and supermarket shelves of the stuff all around the country. We did indeed end up having a toilet paper shortage.

Given the baleful political and economic consequences of this inflation, aren't you astonished that the Administration and the Fed haven't taken an active role in shoring up our enfeebled greenback?

Burmese Barbarism

The horrors unfolding in Burma should once and for all drive a stake through the hearts of those diehards in the West, particularly in universities, who romanticize leftist dictatorships--but probably won't. As long as an oppressive government proclaims its affinity for Marx and "the people," it is given an amazing benefit of the doubt. It's not only intellectuals and academics who defend such regimes--attributing every atrocity to various U.S. policies--but also journalists and pundits who go out of their way to understand the regime's "point of view."

Cuba is a prime example of this weird love/fascination. People rationalize this murderous dictatorship with such phrases as: "They provide health care for everyone, unlike the U.S." An Academy Award-nominated documentary filmmaker produced a work with just such a theme. These distortions are not corrected by facts.

Burma's military clique took over the government in 1962. The strongman at the time proclaimed to be ushering in a new kind of socialism. All he and his successors have done is impoverish a country that should have experienced India/China-like growth rates. Burma's former capital, Rangoon, is run-down. One can see that this was once a vibrant city with an active commercial class. Those living in the countryside are achingly poor; housing structures are crude. It doesn't take much imagination from even a brief visit--which I made a month before the cyclone struck--to see how devastating such a storm would be.

As in Cuba, North Korea and pre-Deng Xiaoping China, Burma's rulers are interested only in perpetuating their power, clichés about "helping the people" notwithstanding. They would rather see their citizens die or suffer than let in outsiders who might expose those with whom they come in contact to new ideas and things that could somehow undermine the reigning dictatorship.

Burma's current gang of thugs didn't adequately warn the citizens of the impending catastrophe and have hobbled international relief efforts in the cyclone's aftermath. No wonder the death toll will exceed 100,000. Unfortunately such reprehensible behavior has plenty of precedent. North Korea didn't hesitate to let more than 2 million of its people starve to death in the 1990s and early years of this decade, when its already grossly inefficient communist/collectivist agricultural system was hit by drought. (Of course, Pyongyang's "Beloved Leader" didn't cut back on his imported brandy.) Cambodia's Communist rulers in the mid-1970s didn't rely on nature to decimate the population: The government murdered one-third of its own people. Joseph Stalin manufactured a famine in Ukraine in the early 1930s that killed 10 million people. And Mao Zedong's schemes, such as the Great Leap Forward, killed at least 60 million people.

China's authoritarian government initially played down or suppressed the SARS outbreak in 2002, but word of it leaked out. The government, knowing China must become part of the global economy, then responded positively and openly.

Burma's rulers think with the same kind of mind-set that prevailed in China before Deng's 1978 modernizing program. They haven't even taken any cues from Vietnam, a communist country that began a China-like opening of its economy in the 1990s.

The only good that will come of this devastation is that any legitimacy the Burmese government may have had has been destroyed. Once the shock and numbness from the cyclone recedes, agitation for regime change will intensify enormously. As one resident of Rangoon put it, "If you engage in a protest, police quickly appear to stop it. But when there is a natural disaster, they are nowhere to be found."

Piggy Pols

Desperate to find money to fund its ever more bloated budgets, the Massachusetts legislature is considering levying a 2.5% annual tax on the portion of college and university endowment funds exceeding $1 billion. The lion's share of the money from such a tax would come from Harvard University's endowment, which currently stands at around $35 billion, although eight other institutions would be hit as well. Legislators are salivating over the prospect of an easy extra $1.4 billion a year with which to fund pet projects.

Revenue-hungry pols are leaving no pocket unpicked. Cut or rein in spending? Heaven forbid. They figure they'll tap into what they perceive as a growing resentment against top-notch universities whose endowments have expanded enormously in recent years while tuitions have simultaneously skyrocketed.

That resentment has led Senator Chuck Grassley (R--Iowa), the ranking Republican on the Senate Finance Committee, to propose that large college endowments be forced to make the same 5% minimum annual payouts that foundations must.

One Massachusetts legislator cited the big endowments as "exorbitant." Who ever thought the day would come when elite universities would be put in the same boat as "greedy" oil companies?

While the odds of a Massachusetts tax actually being enacted may seem remote at the moment, universities had better brace themselves for a Grassley-like broadside. Parents and students are questioning why education costs always rise faster than the rate of inflation. Expect congressional hearings into why university costs rise so rapidly, with a lot of emphasis on the fact that tenured professors spend far less time teaching than they did 20 years ago. For starters, well-endowed universities and colleges will have to follow the lead of Princeton, Harvard, Yale and others in making outright grants to students in place of traditional student loans.

What Is Your Kid Up To?

Hold Tight--by Harlan Coben (Dutton, $26.95). An aptly chosen title for Coben's newest novel. As in his previous mesmerizing masterpieces, this one grips you from beginning to end with its sizzling plots, subplots and all-too-human (and sometimes inhuman) characters. It also touches on an increasingly sensitive subject for today's parents--what their kids are doing on the Internet.

In this Coben tale a physician and his lawyer wife, after much agonizing, decide to install spy software in their teenage son Adam's computer. Since the suicide of a friend of Adam's, their son has become remote, withdrawn. But Adam's mother senses something else is at work, and her fears are further aroused when she and her husband come across a cryptic instant-message exchange. Then Adam disappears.

Before the book closes, we come across cyber-bullies, serial killings, a shady teenage hangout club in the Bronx and another explosive topic in these days of DNA testing: Is a kid's father his biological father?