Paul Krugman: Why the Plutocrats Are Dead Wrong on Inflation and Will Never Admit It


"There but for the grace of Bernanke go we," Paul Krugman writes in his Times column Friday.

He is referring to the fact the European Central Bank is having to take desperate measures to pump up seriously ailing economies on the continent, and that the U.S. is in better shape precisly because the Federal Reserve has already taken measures to, namely  buying trillions of dollars’ worth of bonds to avoid such a crisis. If anything, Krugman argues, the Fed, now led by Janet Yellen, should do more. 

Nonetheless, Bernanke and the Fed's detractors keep at it, insisting that making money easier to come by in recessionary times will lead to runaway inflation. It hasn't and there is no indication that it will, but the inflation hawks are undeterred. But why? Don't facts matter to this crowd? (Ha!)

As Krugman writes

One thing is clear: Like so much else these days, monetary policy has become very much a partisan issue. It’s not just that talk of dollar debasement comes pretty much exclusively from the right of the political spectrum; inflation paranoia has, to a remarkable extent, become a matter of conservative political correctness, so that even economists who should know better have joined in the chorus. So we can focus the question further: Why do people on the right hate monetary expansion, even when it’s desperately needed?

One answer is the power of truthiness — Stephen Colbert’s justly famed term for things that aren’t true, but feel true to some people. “The Fed is printing money, printing money leads to inflation, and inflation is always a bad thing” is a triply untrue statement, but it feels true to a lot of people. And, yes, a tendency to prefer truthiness to more complicated truth is and pretty much always has been associated with political conservatism, and this tendency is especially strong in an era when leading politicians get their monetary theory from Ayn Rand novels.

Yes, good old Ayn Rand, is partly to blame, but more importantly, Krugman points out, inflation is a class issue. For those who have money, inflation devalues it, so they fear it like ebola. On the other hand, inflation helps debtors, a.k.a., the less moneyed. There is a historical analogy to the current class warfare over inflation, Krugman points out.

Back in the Gilded Age, the elite mobilized en masse to defeat William Jennings Bryan, who threatened to take the United States off the gold standard; campaign spending as a percentage of G.D.P. was far higher in 1896 than in any presidential election before or since. Are the wealthy similarly mobilized against easy-money policies today?

Ever fair, Krugman stops short of saying this is the case, although there are "certainly a lot of wealthy investors in the debasing-the-dollar crowd." On the other hand, big investors are enjoying a robust stock market in part thanks to the Fed's expansionary policies. "But the wealthy may not trust that connection, in part because the inflationary ’70s were very bad for stocks," Krugman continues. "And we do know that the very wealthy are much more likely than the general public to consider budget deficits our biggest problem, even though fiscal austerity is probably bad for profits. So perceived class interest is probably also a key motivation for the deflation caucus."

So, not even logic, or truth gets between wealthy interests and their money.

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