Krugman returns to his roots as an economist and finally writes something sensible again.
http://www.nytimes.com/2009/05/29/opinion/29krugman.html
The myth: Inflation is bad, so the conventional wisdom says, and since excessive government debt "causes" inflation, Obama is going to ruin the country.
Krugman's review of this myth is sound, but I highlight the following: If you are genuinely concerned about inflation, then concern yourself with the activities of the Federal Reserve that has in the last few months pumped trillions of dollars of new money into the economy, far more than Obama ever will even if he maintains deficits at this level for 8 years.
Any claim that Obama's policies are bad because of the inflation they may one day cause is disingenuous because it misses the far more inflationary actions of the "non-partisan" Federal Reserve.
(Nor am I concerned that the Federal Reserve is going to cause inflation. While I stand opposed to an unelected Federal Reserve with a free mandate to control the economy, Fed Chairman Bernanke is far more competant than his predecessor.)
Dead rats and dopamine - a new publication
9 months ago
Actually if you read his point, Krugman states that although the feds have pumped money into the economy the money isn't necessarily being circulated , the banks aren't lending the money. Now of course Obama's spending and stimulus plans may lead us to inflation in the next few years but as of right now, the threat remains low, and if the money really isn't being circulated than the risk of inflation is low.
ReplyDeleteA lot of people have saved money and are not spending money. I have read a brief excerpt from Ben S. Bernanke entitled "Downside Danger", it says that low and stable inflation is the best course.
I believe we need inflation, but low inflation and stable inflation, not deflation. People have a lot of money piled up, and inflation will cause their money to go down in value, prompting people to reinvest their money. However, high inflation will prompt people to invest in items such as gold and oil.
They key then , is to keep it low and stable and grow the economy in other ways to reduce it to inflationary pressures. Obama's goal of clean energy and green jobs is a target, a newer "modern economy" - can reduce dependency on these fixed commodies slowly corrisponding with low and stable inflation.
However, I am not giving a free pass to the Obama administration, some of his proposals while wise can be overhyped, subject to lobbying action that ruins or otherwise alters the plan (Obama will bend but not break he claims), and expectations for Obama's plan are very high and there is a chance the bar can be ruined or not met.
Such this is with health care reform and other matters at hand, in addition obama plans massive tax increases that may lead to capital flight or ways of people shielding their money.
People may say sure , I'll pay higher taxes for more services, but not for services half-cooked, thus obama's plan may or may not work, time will tell how he decides to accomplish his goals while bending but not breaking, but if you bend enough its just as bad as breaking at a slower speed until you find out its too late and the damage is done a few years later.