David Glasner has new post about idiots and smart people who have opposed more inflation during the Great Recession, spurred by a debate between Krugman and Waldman (see Galsner’s post for the details on that exchange).
Glasner admits to puzzlement as who may be right or wrong, and he admits to getting a warm-fuzzy seeing low CPI even though a higher measure may have benefited others.
But, in thinking about all this, I believe it may help to distinguish between two types of post-traumatic-inflation stress disorder. One is a kind of instinctual aversion to inflation, which I think is widely shared by people from all kinds of backgrounds, beliefs, and economic status. After arguing and pleading for higher inflation for over three years on this blog, I am a little bit embarrassed to make this admission, but I suffer from this type of post-traumatic-inflation stress disorder myself. I know that it’s weird, but every month when the CPI is announced, and the monthly change is less than 2%, I just get a warm fuzzy feeling inside of me. I know (or at least believe) that people will suffer because inflation is not higher than a measly 2%, but I can’t help getting that feeling of comfort and well-being when I hear that inflation is low. That just seems to be the natural order of things. And I don’t think that I am the only one who feels that way, though I probably suffer more guilt than most for not being able to suppress the feeling.
I am puzzled by what kind admission this is because whether more inflation was called for during the Great Recession is, from my point of view, irrelevant to the circumstances. Monetary expansion was called for during the Great Recession to return the economy to trend NGDP, much more than we got, because the demand for liquidity rose during the crisis and remains elevated even today. The credit channel collapsed, therefore expansion of monetary aggregates was the only expedient to accommodate the demand. Whatever more or even less inflation has to do with discussion of what to do about the Great Recession other than merely secondary effects is entirely unclear to me.
Thus, I find it surprising that Glasner spends so much time explaining the perception of the pros and cons for more or less inflation on each side of the debate, and goes as far as to quote Keynes quoting Marx’s famous debasement passage. In a hard money regime, debasement is a rather straightforward process – diluting of the coinage. But I think I need someone to explain to me just exactly how easy or difficult it would be to do that with “worthless paper.” It’s a real head-scratcher. Hyperinflation isn’t impossible, but takes quite a bit of work if starting from the immediate post-crisis world of the Great Recession… and we might even enjoy the ride for at least some portion of the trip from here to there. The US is not Venezuela which arguably has far more problems than just lack of monetary discipline.
Going in full circle, I’m brought back to being awe-struck over how any of it has anything to do at all with here and now. It doesn’t matter what people think the wrong things to do are or why they think in that way. What matters is what the right thing to do really is. More inflation has never been correct, and is completely beside the point.