Every politician promises to fight inflation. Every election brings new proposals to lower prices. Yet very few public officials spend much time explaining what inflation is, why it occurs, or how they plan to fix it. That is unfortunate because understanding inflation is quite simple. Implementing the cure, however, is exceedingly difficult.

It all begins with supply and demand. When supply and demand are out of balance, prices change. If demand exceeds supply, prices rise until economists' favorite word, "equilibrium," is reached. With rising prices, demand decreases and supply increases until prices stabilize. Conversely, if supply exceeds demand, prices fall until equilibrium is restored. This is Economics 101, and most Americans understand it intuitively.

We see these price changes every day in individual products. Last year, for example, egg prices skyrocketed because millions of chickens died from avian influenza. There simply were not enough eggs to satisfy consumer demand. Prices rose sharply until producers rebuilt their flocks and supply recovered. Once supply increased, egg prices fell. The government neither created nor solved that problem. Markets did exactly what they are designed to do. Higher prices encouraged producers to increase production, additional supply entered the market, and prices came back down.

That was not inflation. It was simply supply and........

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