Yes, Inflation is our Savior

One of Paul Krugman's repeated themes in his columns and blog posts is that inflation is a wonderful thing, and apparently we never can have enough of it. Inflation wipes out debt, transfer wealth from creditors to debtors, and makes all of us feel rich.

Hyperinflation? No problem. It might make things inconvenient for a while, but it really doesn't do any damage. The only damage comes if we stop inflating and even have the dreaded and evil deflation.

In a recent blog post, "It's Always 1923," Krugman once again accuses others of rewriting history. This is rich from the guy who wants us to believe that all of the major deregulatory initiatives of 30+ years ago were the product of Ronald Reagan, despite the fact that many of the major initiatives already had passed or were in the hopper before Reagan even won the 1980 presidential election. (As I have said many times before, Krugman wants us to believe that Jimmy Carter and Ted Kennedy were conservative Republicans.)

While praising a recent piece by David Glasner that praises (What else?) "easy money," Krugman writes about the famous German hyperinflation of 1923:

...the 1923 hyperinflation didn’t bring Hitler to power; it was the Brüning deflation and depression. Hard money and a gold standard obsession, not excessive money printing, was the proximate disaster.

Technically, he is correct. Hitler came to power nine years after the hyperinflation during the Great Depression (which hit Germany very hard). However, one gets the sense that Krugman does not take that inflation very seriously, and that any policy other than "easy money" will bring an economy to ruin.

That should not surprise anyone, given Krugman's constant drum-beating for more inflation today. While extolling the government's own inflation index, Krugman wants us to believe that only the rich are inconvenienced by inflation, and that the rest of us are better off because of it.

What he does not say is that most middle and lower-economic class Americans have not seen increases in their incomes in years, but the prices they have had to pay for food, gasoline, and other commodity-based goods have gone up substantially. (Of course, Krugman has claimed that THOSE price increases have nothing to do with the massive money-printing operation at the Fed, and that they are due entirely to the fact that commodity prices are "volatile" -- his words.)

Furthermore, he is in a quandary when he praises inflation. If inflation does no economic damage -- other than to supposedly transfer wealth from rich to poor and middle-class people, something that Henry Hazlitt pointed out decades ago is simply not true -- then hyperinflation also would be a good thing. In Wonderland, there is no such thing as inflation distorting structure of production or encouraging lines of production that are unsustainable.

In fact, in Wonderland, inflation does the opposite: it encourages more capital formation and investment in everything, since it supposedly increases "demand," and "aggregate demand" is the key to prosperity. If that be the case, then we have discovered the secret for Haiti to become more prosperous: print money and lots of it.

Keynesians are not free to claim here that Haiti's problems lie elsewhere, since they have debunked any arguments that say capital formation and production structures don't matter. All that matters is demand, so if Haiti's government wants to print "demand," it should do so and then investors will flock to Haiti to build more things, given the "demand" for goods, all courtesy of the printing press.

Hazlitt made a very good analogy when he wrote that inflation is like the "Dead Sea Fruit," which "turns to ashes" when one puts it in one's mouth. I'm not surprised that yet another economics faculty member at Princeton has praised that economic wonderdrug, inflation.