{"id":462900,"date":"2010-03-23T14:00:05","date_gmt":"2010-03-23T18:00:05","guid":{"rendered":"tag:www.economist.com,21005544"},"modified":"2010-03-23T14:00:05","modified_gmt":"2010-03-23T18:00:05","slug":"file-under-things-not-to-worry-about","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/462900","title":{"rendered":"File under things not to worry about"},"content":{"rendered":"

RECENTLY, Michael Kinsley wrote a pretty misguided column<\/a> warning that America should maybe be worried about looming hyperinflation. Paul Krugman responded<\/a> to this column by, essentially, calling it nonsense. And now Mr Kinsley has written back<\/a>:<\/p>\n

\n

(1) Krugman should stop bullying people with accusations of economic ignorance. I would never pretend to know a tenth of economics Paul knows. But if he means, in calling this distinction a matter of \u201ctextbook economics [subtext: you idiot],\u201d that economic textbooks make this distinction, he is wrong. Or at least no such distinction between inflation and hyperinflation is made, despite an extensive discussion of inflation, in the leading economics textbook, by Harvard Professor Gregory Mankiw.<\/p>\n

(2) Krugman\u2019s definition of hyperinflation\u2014\u201cwhen governments can\u2019t either raise taxes or borrow to pay for their spending, they sometimes turn to the printing press\u201d\u2014is more or less precisely what I wrote that I was afraid of. I suppose there\u2019s a difference between the government printing money to pay off its debts (Krugman\u2019s definition) and the government printing money to reduce the real value of its debts (my fear). But not much of one.<\/p>\n<\/blockquote>\n

To point one, that “leading economics textbook” is an intro textbook. So, you know, it might leave some important stuff out.<\/p>\n

To point number two, well, this gets at Mr Kinsley’s big error, which, in his defence, is fairly common\u2014misunderstanding the economic significance of hyperinflation. In his initial piece, Mr Kinsley claimed that America “peered into this abyss” in the 1970s and pulled back just in time. But as he notes, annual inflation rates in the 1970s peaked at around 13%. In a real hyperinflation, inflation proceeds at a much, much faster clip. Inflation in Zimbabwe, for example, may have touched an annual rate of nearly 90 sextillion percent.<\/p>\n

Contra Mr Kinsley, there is a massive difference between printing money to pay off debts and printing money to erode the real value of debt. In the immediate postwar period, America experienced<\/a> annual rates of inflation up to 10%, which eroded the value of America’s war debt by some 40%. Hyperinflation was never a problem. And there is a big difference between governments that are reluctant to opt for painful budget fixes and governments that absolutely cannot do it. Moreover, the pain of hyperinflation is every bit as bad as and worse than the pain of tax increases, or spending cuts, or default. No politician would risk it, and even if the politicians were willing to, America’s independent Fed wouldn’t let them.<\/p>\n

The truth about hyperinflation is that it isn’t so much an economic phenomenon as a political one; it corresponds to the complete breakdown of a country’s political institutions. It is no coincidence that episodes of hyperinflation are typically associated with very poor developing nations, those exiting major conflicts, and those suffering from other major economic dislocations (like the end of Communism).<\/p>\n

To get from America’s current situation to one in which hyperinflation is a realistic possibility, one must pass through an intervening step in which America’s political institutions utterly collapse. And I submit that if Mr Kinsley has reason to believe that such a collapse is imminent, he should be writing columns warning about that<\/em> rather than the economic messes which might follow.<\/p>\n","protected":false},"excerpt":{"rendered":"

RECENTLY, Michael Kinsley wrote a pretty misguided column warning that America should maybe be worried about looming hyperinflation. Paul Krugman responded to this column by, essentially, calling it nonsense. And now Mr Kinsley has written back: (1) Krugman should stop bullying people with accusations of economic ignorance. I would never pretend to know a tenth […]<\/p>\n","protected":false},"author":4534,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-462900","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/462900","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/4534"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=462900"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/462900\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=462900"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=462900"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=462900"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}