Krugman: Why there will be no ‘hyper-inflation’




This isn’t news-news, but today the Professor gives a great simple answer to hyper-inflation freaks. There are two types of these:

    The Big Boys, who will actually benefit if the lie is believed,
    The loudmouth in the next cubicle, or four bar stools away.

The first type has skin in the game; we’re ignoring him, since he’s willfully ignorant.

Instead, this little piece tells you what to say to the loudmouth.

Krugman’s answer? If you “print money” (stimulate) in a supply-driven recession — one in which there are buyers but no supply — you do get inflation.

But if you “print money” (stimulate) in a demand-driven recession — i.e., sellers but no demand — you can’t inflate the economy until there’s a recovery. By definition, if no one buys, there can be no price moves, generally speaking.

I’ll boil it down for the loudmouth below. Here’s Krugman at the source (my emphasis):

[M]any economists these days reject out of hand the Keynesian model, preferring to believe that a fall in supply rather than a fall in demand is what causes recessions. But there are clear implications of these rival approaches. If the slump reflects some kind of supply shock, the monetary and fiscal policies followed since the beginning of 2008 would have the effects predicted in a supply-constrained world: large expansion of the monetary base should have led to high inflation, large budget deficits should have driven interest rates way up. And as you may recall, a lot of people did make exactly that prediction. A Keynesian approach, on the other hand, said that inflation would fall and interest rates stay low as long as the economy remained depressed. Guess what happened?

And for good measure he adds a nice picture of not–hyper-inflation, no red line shooting to the sky:

So the next time the loudmouth complains about “printing money” and “driving us into debt forever” — ignore the possibility that he just doesn’t want “those” people to get “his” money.

Just ask him calmly, “Why are we in a recession? Is it because there’s not enough stuff to buy, or because people are too poor (or unwilling) to buy it?”

If he says the latter, ask, “How can prices go up when no one is buying?”

Ahem.

GP


Gaius Publius is a professional writer living on the West Coast of the United States.

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