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AI discusses the cause of inflation. Here’s an addictive example you can enjoy yourself.

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Want to have a discussion about anything — ANYTHING —with an intelligent person? How about a discussion with a seemingly intelligent, seeming person?

Here’s a discussion I had with a pretty good facsimile, an exercise you can enjoy yourself by clicking the link.

We discussed the cause of inflation. Warning, it’s addictive. Unlike the humans I try to reason with, the computer never gets angry or even impolite. It always acknowledges points made. And its opinions are not its own.

Sadly, it doesn’t learn from arguments. It just keeps repeating what it already has been told by its references.

Rodger Mitchell: It widely is believed that “excessive federal spending causes inflation,” yet when I try to find an example of excessive federal spending causing inflation, I receive the explanation that, “It’s really a combination of factors of which excessive federal spending is one factor and not even an immediate factor.

“It could be a delayed part.”

Sadly, that could be said of anything. I could make the same statement about phases of the moon or children born with red hair — as being only one factor and not even an immediate factor in inflation.

A computer-generated illustration of: A computer on a stage, talking into a microphone.”

In short, federal spending is no more a demonstrable factor than is a sign of the zodiac.

Chat GPF: The relationship between federal spending and inflation is a complex and debated topic among economists.

While some people hold the belief that excessive federal spending directly causes inflation, the reality is more nuanced and not as straightforward as a simple cause-and-effect relationship.

Inflation is a general increase in prices over time, and it can be influenced by a variety of factors, including monetary policy, fiscal policy, supply and demand dynamics, international trade, productivity levels, and more.

Excessive federal spending can potentially contribute to inflation, but it is not the sole or immediate factor responsible for it.

When economists explain that excessive federal spending is only one factor and not an immediate one in inflation, they are acknowledging the multifaceted nature of inflation.

They are suggesting that while federal spending can have an impact on inflation, it needs to be considered alongside other variables that influence price levels.

Simply blaming federal spending without considering other factors would oversimplify the issue.

It is important to note that economic phenomena, such as inflation, are typically the result of multiple interacting factors. This complexity makes it challenging to isolate and definitively prove the direct causal relationship between any single factor and inflation.

Therefore, it is not accurate to compare federal spending’s role in inflation to unrelated factors like phases of the moon or hair color, as the former is subject to economic analysis and empirical research.

Computer-generated image of: “A computer pondering a question in economics.”

Economists continue to study the relationship between federal spending and inflation, and there are differing views within the field.

Some argue that excessive government spending, particularly when not matched by increased productivity or accompanied by monetary expansion, can contribute to inflationary pressures.

Others argue that other factors, such as changes in private sector spending, global economic conditions, or shifts in supply and demand, have a more significant influence on inflation.

In summary, while excessive federal spending can potentially contribute to inflation, it is just one factor among many.

The complexity of economic systems and the multitude of factors influencing inflation make it difficult to attribute it solely to federal spending. Economic analysis and research are ongoing to better understand these dynamics and their interrelationships.

Rodger Mitchell: It’s not terribly “challenging to isolate and definitively prove the direct causal relationship between any single factor and inflation.” Inflations historically are caused by shortages, usually shortages of oil or food. I see many parallels through history between oil or food shortages and inflation.

I do not see the same parallels between federal spending and inflation. Can you provide an example of an inflation that did not result from an oil or food shortage, but instead resulted from excessive federal spending?

ChatGPT: While it is true that supply shocks, such as oil or food shortages, have historically played a role in triggering inflationary episodes, it would be incorrect to assert that inflation is exclusively caused by these factors. Inflation can also arise due to other factors, including excessive government spending.

One example often cited as an instance where excessive federal spending contributed to inflation is the case of Zimbabwe in the late 2000s. The Zimbabwean government embarked on a policy of significant fiscal expansion, primarily through extensive money creation, to finance its expenditures.

This resulted in a substantial increase in the money supply, leading to hyperinflation.

During this period, Zimbabwe experienced a severe economic crisis, with skyrocketing prices, rapid depreciation of the currency, and a loss of confidence in the monetary system.

Your Creation
Four computer generated images of: “A computer laughing at a joke”

While there were other factors at play, such as economic mismanagement and a decline in agricultural productivity, excessive government spending and the consequent increase in the money supply were key drivers of inflation in Zimbabwe.

It’s important to note that this example is just one case among many, and the relationship between federal spending and inflation is not always straightforward.

The impact of government spending on inflation can vary depending on several factors, including the overall state of the economy, fiscal and monetary policies, and the credibility of the government in managing its finances.

In many instances, inflation may result from a combination of factors rather than being solely attributable to a single cause.

It is also worth noting that the effects of excessive government spending on inflation may not be immediate but can manifest over time as the economy adjusts to the increased money supply and the potential distortionary effects of government interventions.

In summary, while oil or food shortages have historically been associated with inflation, excessive federal spending can also contribute to inflationary pressures under certain circumstances.

The example of Zimbabwe illustrates how a combination of factors, including excessive government spending and monetary mismanagement, can lead to inflation.

However, it is important to recognize that the relationship between federal spending and inflation is complex, and various factors can interact to influence price levels in an economy.

Rodger Mitchell: The Zimbabwe inflation was caused by a food shortage. Farmland was taken from farmers and given to non-farmers. The result: Food shortage and inflation.

The money “printing” was a response to, not a cause of, inflation.

ChatGPT: While it is true that Zimbabwe’s land redistribution policies and subsequent disruptions in agricultural productivity were significant contributors to the country’s hyperinflation, it is essential to note that excessive money creation by the central bank played a crucial role as well.

The Zimbabwean government resorted to financing its budget deficit by effectively printing money, leading to a significant expansion of the money supply.

This, combined with the loss of agricultural output, created a situation of excess money chasing limited goods, fueling hyperinflation.

The land redistribution policy disrupted agricultural production by displacing experienced farmers and replacing them with individuals who lacked the necessary skills, resources, and incentives to maintain productive farms. This resulted in a decline in food production, contributing to shortages and price increases.

However, it is important to understand the sequence of events. The initial cause of the inflationary spiral in Zimbabwe was the disruption in agricultural productivity due to the land redistribution policy.

As the economy faced shortages of food and other goods, the government responded by printing money to finance its spending obligations, exacerbating the inflationary pressures.

Inflation is a complex phenomenon, and it rarely has a single cause. In the case of Zimbabwe, both the land redistribution policy and the subsequent monetary expansion played significant roles in the hyperinflationary episode. It is crucial to recognize the interplay between these factors rather than attributing the entire inflationary outcome to a single cause.

This example underscores the importance of considering multiple factors and their interactions when analyzing the relationship between excessive federal spending and inflation. While it is true that supply shocks like food shortages can trigger inflation, the subsequent monetary and fiscal responses to those shocks can amplify and prolong the inflationary effects.

Rodger Mitchell:

(At this point I decided not to get into the fact that Zimbabwe was not Monetarily Sovereign, so though it could print currency, it’s money was tied to the dollar, and important inflationary consideration.) It would be helpful if you could point to a single inflation in history that was precipitated by government spending rather than being precipitated by a shortage of oil, food or some other critical factor.

I suspect all inflations really are caused by shortages.

ChatGPT: There have been cases in history where excessive government spending has contributed to inflation, even in the absence of shortages in critical factors like oil or food. One notable example is the hyperinflation experienced by Germany in the early 1920s.

After World War I, Germany faced significant war reparations and a massive budget deficit. The German government resorted to financing its spending by issuing large amounts of debt and, eventually, by printing money.

The excessive money creation, combined with a lack of corresponding increase in production and output, led to a rapid devaluation of the German mark and hyperinflation.

During this period, there were no significant shortages of oil or food in Germany. Instead, the excessive government spending and the resulting increase in the money supply caused a loss of confidence in the currency, leading to skyrocketing prices.

People’s wages and savings quickly became worthless as the value of the mark rapidly declined.

This example illustrates how excessive government spending and the subsequent expansion of the money supply, without corresponding increases in productivity or output, can lead to inflation.

It demonstrates that inflation can occur even in the absence of shortages in critical factors.

While supply shortages can certainly contribute to inflation, it is not accurate to claim that all inflations are solely caused by shortages. Economic phenomena such as inflation are influenced by a multitude of factors, including both demand and supply-side dynamics, monetary policy, fiscal policy, and other macroeconomic conditions.

It is crucial to recognize that inflation is a complex phenomenon with multiple potential causes, and it can arise from different combinations of factors in different historical contexts.

Rodger Mitchell: So, prices of food and oil went up even though there was no shortage of these products? And it was all due to government spending? Then the inflation was cured by even more government spending to create the greatest military force the world had ever known? Does any of this make sense to you?

ChatGPT: I apologize if my previous responses were not clear. Allow me to clarify.

In the case of Germany’s hyperinflation in the early 1920s, it is important to note that the excessive government spending and subsequent increase in the money supply were contributing factors to inflation.

However, it would be inaccurate to say that the inflation was solely caused by government spending without considering other factors at play.

During that period, Germany faced a complex set of circumstances, including war reparations, economic disruptions from World War I, and political instability.

The excessive government spending and the resulting expansion of the money supply added to these challenges, leading to hyperinflation.

Inflation is a multifaceted phenomenon influenced by various factors, including monetary policy, fiscal policy, supply and demand dynamics, productivity, external factors, and more. It is rarely driven by a single cause.

Regarding your statement about inflation being “cured by even more government spending to create the greatest military force the world had ever known,” it is important to differentiate between the context of post-World War I Germany and the broader discussion about the relationship between government spending and inflation.

Government spending, particularly in the context of wartime mobilization or rebuilding efforts, can have stimulative effects on the economy.

However, the impact on inflation depends on various factors, including the state of the economy, fiscal management, and monetary policies implemented.

It is crucial to approach the analysis of inflation and government spending with nuance, considering the specific historical context and the multitude of factors involved. There is no one-size-fits-all explanation, and each situation requires careful examination of the unique circumstances at hand.

Rodger Mitchell: There is a widespread fear that government spending causes inflation. It is the foundation of the “debt-limit” laws. Because the federal government cannot run short of dollars, the only ostensible purpose of the debt limit is to prevent inflation.

But, government spending alone doesn’t cause inflation. There needs to be, as you said, “war reparations, economic disruptions, and political instability.”

Absent these factors, which cause shortages of key goods and services, government spending does not cause inflation. Thus, the excuse for a debt limit disappears.

ChatGPT: You raise an important point about the relationship between government spending and inflation. While it is a common belief that government spending alone leads to inflation, the reality is more nuanced.

As you mentioned, inflation typically occurs when there are shortages in key goods and services or when there is excessive money creation that outpaces the productive capacity of an economy.

Government spending can potentially contribute to inflation if it is not matched by increased productivity or accompanied by appropriate fiscal and monetary policies.

The purpose of debt limits, including the ones imposed on governments, can indeed be aimed at controlling inflationary pressures. By limiting the amount of debt the government can accumulate, policymakers aim to prevent excessive money creation and potential inflation.

However, it is important to note that debt limits are just one of many tools governments use to manage their fiscal policies, and their effectiveness in curbing inflation can vary.

In practice, the relationship between government spending, debt limits, and inflation is complex and dependent on various factors. These factors include the overall state of the economy, fiscal management, monetary policies, external economic conditions, and more. Each situation requires careful analysis of the specific context to understand the potential impacts on inflation.

While shortages of goods and services can exacerbate inflationary pressures, it is not accurate to dismiss government spending as irrelevant to inflation in the absence of such shortages. The impact of government spending on inflation is influenced by a range of economic factors, and it is subject to ongoing debate and analysis among economists.

In summary, the relationship between government spending and inflation is multifaceted. While shortages of key goods and services can contribute to inflation, government spending can also have inflationary effects if not appropriately managed. The role of debt limits in preventing inflation depends on various factors and can differ from one economic context to another.

Note the repeated use of the “This, but on the other hand, that” argument. Also, while the public believes excessive” “federal  spending causes inflation, ChatGPT says other factors must be present. (It is these “other factors” that are the cause of inflation. Increased money creation is a response to inflation, not a cause.) While the complaint often is made that is not a reliable source of information, that same complaint can be made about every other source of information — books, newspapers, encyclopedias, and certainly the government, the Internet and television (perhaps except for FOX and Breitbart, which are reliably wrong). For example, you’ll notice that never does provide any data to demonstrate that federal spending causes inflation. It dances around that central point by making the “various factors” claim. Unfortunately, it cannot yet receive pictures or graphs, else I would have provided it with graphs demonstrating the lack of a historical relationship between inflation and federal spending along with the profound historical relationship between oil shortages and inflation. I suspect that by the time this year ends, we will be able to show the AI pictures, graphs, videos, and music. It might even admit that debt limits are a lie foisted on the innocent public by the rich, the purpose being to widen the Gap between the rich and the rest. Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell


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