In today’s column, Paul Krugman now insists that not only should we not fear inflation, but we don’t even have to worry about it at all, at least in the short term. As is his style, Krugman wraps a Big Lie around a tiny kernel of truth.
First, the self-pronounced Great One claims that anyone who even says the “I-word” is engaging in scare talk. Banks might be flush with reserves, he notes, but lending is way down. (Funny how that happens when government demonizes the healthy firms and props up the sick ones.)
Second, Krugman forgets that there is another inflation card to be played, and that is the Federal Reserve purchasing bonds directly from the Treasury and the Treasury spending the money from there. In fact, Krugman has endorsed the use of inflation as a way to give the economy “traction.”
In his book, The Return of Depression Economics, Krugman states that most economic problems can be “solved” by governments printing more money. To Krugman, money is nothing more than a governmental creation that can — and should — be manipulated by the state whenever Great Minds like Krugman declare it.
Here is someone who attacks gold as money, not simply because governments cannot manufacture new gold to give an economy “traction,” but also because things like gold (or any monetary standard) come with expectations of honesty, integrity, and holding to promises. That, according to Krugman, is silly:
I’ve just reread Eichengreen and Temin, The Gold Standard and the Great Depression, which does a great job of showing how the “gold mentality” — what they call mentalite, with an accent — paralyzed policymakers. (The longer-form version, with more personal color, is Liaquat Ahamad’s Lords of Finance.)
What E&T show is that circa 1930 key decision-makers had spent so many years equating adherence to gold not just with prosperity, but with morality, decency, civilization itself, that they couldn’t even contemplate breaking with that orthodoxy — even in the face of total catastrophe.
I think we’re more flexible now. But my sense is that the mystique of finance is playing a somewhat similar role.
One cannot minimize what he is saying, for it goes to the heart of Krugman’s view of economics. In that view, people and their choices are to be manipulated and coerced whenever the government declares it. Now, Krugman seems to believe that only governments can prevent economic disaster. Others, like me, hold that governments generally are the cause of economic disaster, and that certainly holds true in the current crisis.