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 BrĂ¼ning 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.
15 comments:
What Krugman really has no answer for is the high price of petroleum on the world market. It's strange he spends so little time discussing this issue.Brent and WTI remain stubbornly at or near $100 per barrel, which is a price too high for the American oil-dependent economy. President Obama "praised" the American people for lowering our carbon emissions in the SOTU, but this praise was pure baloney. We're not driving as much because gasoline is too expensive, and since it's becoming axiomatic that the high price of petroleum has found its way into the high cost of producing and transporting food, the basic things Americans need to stay alive (food & fuel) cost so much that they don't have the discretionary money to sustain Krugman's beloved "demand" for things they don't need. So he will keep telling us that all of this economic depression is connected to a financial crisis that started in 2007, coming up on 6 years ago, and that financial crises precede "slow recoveries," especially where the federal govt. doesn't leap into the vacuum and supply the necessary "demand." Krugman is beyond useless; he's completely irrelevant. He has his Keynesian story he bases his ego on, and he's sticking to it.
I highly doubt there will be hyperinflation in America. Aren't you familiar with the concept of the velocity of money or are you going to take one of Henry Hazlitt's quotes out of context and call that a refutation?
I don't believe the second and third rounds of quantitative easing were necessary, but why isn't there massive inflation all over the place from all this so-called "money printing" or expanding the money supply?
Relax, Professor Anderson!
QE1 seemed appropriate to prevent a deflationary spiral, and then the Fed could have set the inflation rate to 0 and stopped the process, especially when the misallocations in the economy have settled out and at the first sign of infation.
In addition to this, weren't countries like Germany already ravaged by World War I. Maybe that was a huge factor in why the hyperinflation happened in the first place.
QE1 seemed appropriate to prevent a deflationary spiral, and then the Fed could have set the inflation rate to 0 and stopped the process, especially when the misallocations in the economy have settled out and at the first sign of infation.
How do you know this? And the Fed can "set the inflation rate to 0"? Who are these masterminds that are qualified to make decisions about voluntary exchange for others? How about everyone make their own decisions? The Fed is basically fixing the price of borrowing money, they could also fix the price of gasoline as well, say at 75 cents a gallon. What do you suppose would happen if they did?
"If inflation does no economic damage then hyperinflation also would be a good thing. "
What logic underlies that? If a glass of wine after dinner does no harm, then neither should 10 a day? If 3000 calories a day is fine, why not 30,000?
There's nothing logically inconsistent in saying mild single-digit inflation would be a good thing but not hyperinflation.
The primary problem with diluted funny money is the distortion of relative prices and the impairment of the essential information that is communicated by unadulterated prices.
Without exception, all Keynesians refuse to process that simple analysis and no Keynesian to my knowledge has ever attempted to apply it to an actual factual situation (in the very least in an attempt to refute it).
They fail to do that because the analysis is indeed irrefutable so, like LK, they try to change the subject.
"How do you know this? And the Fed can "set the inflation rate to 0"? Who are these masterminds that are qualified to make decisions about voluntary exchange for others? How about everyone make their own decisions? The Fed is basically fixing the price of borrowing money, they could also fix the price of gasoline as well, say at 75 cents a gallon. What do you suppose would happen if they did?"
It's obviously not a perfect system, but today's economy has become so interdependent and central banks have become a reality. Keeping the Fed's role mainly passive, unless there's a bust, seems like the most appropriate course of action.
How can the Fed "fix" the price of gasoline? That sounds more like basic supply and demand to me.
I misread your comment, Pulverized Concepts, but what alternative would you have in mind to what's already there without plunging the world economy into chaos?
"Without exception, all Keynesians refuse to process that simple analysis and no Keynesian to my knowledge has ever attempted to apply it to an actual factual situation (in the very least in an attempt to refute it)."
That's a sweeping generalization!
That's a sweeping generalization!
So, find a Keynesian who has actually applied Austrian "economic calculation" analysis. Or do it yourself.
http://krugman-in-wonderland.blogspot.com/2013/02/kick-that-keynesian-habit.html?showComment=1360544395284#c4991500197178083803
The US got along pretty well with no central bank at all from 1833 to 1913, a period of unequaled economic growth in the country and a currency tied to metal. A central bank didn't prevent the "plunging the world economy into chaos" in 1929 or 2008. The very idea that politicians attempting to implement the advice of their favorite economists to structure even a small economy is patently absurd.
Bob Roddis: Maybe those economists just don't agree with the idea. Of course empiricism can't predict every single bit of human action, but it can help predict what might happen. I don't see anything wrong with models to help aid with this, especially in the short run. Praxeology can coexist and I feel that sometimes, people come to resent all math involved in economics.
Pulverized Concepts: Why isn't silver discussed as often as gold. The main reason that gold replaced silver was through legislative means.
There was a ton of economic growth after the Second World War and in the 1990s.
I'm not sure how people can't see the effects of inflation in the present economy. We're paying more for just about every commodity in existence despite a flat lined economy showing no signs of demand based growth. In spite of that fact, however, the true effects are yet to be felt because of the accounting juggling going on with our debt. It will be the housing market bubble crash all over again, except this time it will be our whole government.
But Anon, what about the falling prices in computers, laptops and other technology based products?
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