Tuesday, February 20, 2018

Paul Krugman Says Don’t Worry About Inflation

December 26, 2009 by  
Filed under Inflation or Deflation

Paul Krugman

Paul Krugman Makes the Case Against Inflation

In a New York Times article titled “The Big Inflation” scare,  Paul Krugman attempts to counter the most popular inflationista arguments regarding the inevitability of inflation.

1. The Fed is printing money like it’s going out of style. Not so says the Pulitzer Prize winning Princeton professor. He does acknowledge that the Fed has been buying debt like it’s going out of style, both  from the government and the private sector, and yes, in ordinary times, that practice would of course be inflationary. In ordinary times, flush with all that fresh new cash, the banks would be chasing after borrowers to take out loans.

But in these extraordinary times, the banks are not lending the money the borrowed from the Fed for next to nothing.  They’re sitting on it. (Future blog post topic, what’ the point of that?)

2. Krugman is slightly more accepting of the argument that the extraordinary budget deficits we’re seeing, will force the government to “inflate away its debt”.  He says that the second argument “could be right, but isn’t.”

Krugman’s academic credentials are of course impeccable. On the other hand, his track record for having made successful trades on his own behalf, to state it politely, is undocumented.

He attempts to make the case that the widespread concerns about inflation are “at least partly about politics rather than economics.”  In his view, “Deflation, not inflation, is the clear and present danger.”

So if you buy into Professor Krugman’s case against inflation, you probably be short on gold, and long on the dollar. But before you execute those trades with your  broker, keep in mind that Krugman admits that “we have a long-run budget problem, and we need to start laying the groundwork for a long-run solution.”

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