Friday, May 29, 2009

Paul Krugman doubts Inflation

Paul Krugman, who constantly congratulates himself on predicted the housing collapse, is putting his reputation on the line in his belief that the U.S. is living out the Keynesian model.

He writes:

First things first. It’s important to realize that there’s no hint of inflationary pressures in the economy right now. Consumer prices are lower now than they were a year ago, and wage increases have stalled in the face of high unemployment. Deflation, not inflation, is the clear and present danger.

Hmmm...deflation?

Oil has gone from $32/barrel to $66/barrel (WTI morning of 5/29). The dollar keeps dropping. The 5yr TIPS-Treasury spread (a market indicator of inflation) has risen from -0.7% to +1.4% over the last few months and its growth shows no signs of abating.

Then, in his standard style he throws up a straw man:

But it’s hard to escape the sense that the current inflation fear-mongering is partly political, coming largely from economists who had no problem with deficits caused by tax cuts but suddenly became fiscal scolds when the government started spending money to rescue the economy. And their goal seems to be to bully the Obama administration into abandoning those rescue efforts.

Find me one libertarian economist who had no problem with Bush's profligate spending. Right now, it's the libertarians making the most noise about inflation, not the middling "conservatives" like Greg Mankiw who is all for massive money printing.

Someone is going to be gloating over the next few months, we'll just have to wait and see.

4 comments:

Doug said...

I fear that deflationary fear will be the economy's demise.

Brian Shelley said...

I tend to agree. The longer they continue to believe that deflation is the bigger deal the more inescapable significant inflation will become.

Robert J. Moeller said...

Hey I randomly found your blog and I'm glad I did. Very interesting stuff! I'm a conservative writer/grad student/blogger in Chicago (rjmoeller.com). Keep up the good work!

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