Paul Krugman on the Distressing Reality Behind the Inflation Cult

Paul Krugman has a bee in his bonnet. He will not rest until he figures out what exactly is behind the demonstrably crazy behavior of people, politicians and pundits who cling to a belief no matter how many times it is proven wrong. It is, the columnist says in Friday's column, very much akin to cult-like behavior, followers who believe in their prophet no matter how many times his (usually it's a he) foretold apocalypse does not arrive.

It's one thing to be wrong, Krugman points out. He's been wrong, he admits. "If an economist never makes an incorrect prediction, he or she isn’t taking enough risks," he points out. "But it’s less common for supposed experts to keep making the same wrong prediction year after year, never admitting or trying to explain their past errors. And the remarkable thing is that these always-wrong, never-in-doubt pundits continue to have large public and political influence.

"There’s something happening here. What it is ain’t exactly clear," the Nobel-prize winning economist continues, unable to resist quoting Buffalo Springfield. (Bet he's been wanting to do that for a long time.)

The crazies keep on ranting. "Rick Santelli, famous for his 2009 Tea Party rant, also spent much of that year yelling that runaway inflation was coming," Krugman writes. "It wasn’t, but his line never changed. Just two months ago, he told viewers that the Federal Reserve is “preparing for hyperinflation.”

More sobering is the fact that serious money people and professional investors seem to have taken the predictions seriously and are surprised the much-vaunted inflation has not arrived. 

Krugman expends more words on proving that the cult of inflation is a wholly irrational one, impervious to real-life events and facts.

Then he finally gets to the why. Yes, it's because the wealthy perceive easy money to be against their interestes. That's no small part. It's political too. Getting to the meat of it, Krugman explains:

There’s a reason why Mr. Santelli yells about both inflation and how President Obama is giving money away to “losers,” why Mr. (Paul) Ryan warns about both a debased currency and a government that redistributes from “makers” to “takers.” Inflation cultists almost always link the Fed’s policies to complaints about government spending. They’re completely wrong about the details — no, the Fed isn’t printing money to cover the budget deficit — but it’s true that governments whose debt is denominated in a currency they can issue have more fiscal flexibility, and hence more ability to maintain aid to those in need, than governments that don’t.

And anger against “takers” — anger that is very much tied up with ethnic and cultural divisions — runs deep. Many people, therefore, feel an affinity with those who rant about looming inflation; Mr. Santelli is their kind of guy. In an important sense, I’d argue, the persistence of the inflation cult is an example of the “affinity fraud” crucial to many swindles, in which investors trust a con man because he seems to be part of their tribe. In this case, the con men may be conning themselves as well as their followers, but that hardly matters.

This tribal interpretation of the inflation cult helps explain the sheer rage you encounter when pointing out that the promised hyperinflation is nowhere to be seen. It’s comparable to the reaction you get when pointing out that Obamacare seems to be working, and probably has the same roots.

So, that is scary. That we are that polarized, that tribal, and that many people out there would sooner trust a con man than the truth, because the con man is one of them.