{"id":468402,"date":"2010-03-24T15:26:30","date_gmt":"2010-03-24T19:26:30","guid":{"rendered":"tag:www.economist.com,21005572"},"modified":"2010-03-24T15:26:30","modified_gmt":"2010-03-24T19:26:30","slug":"when-to-worry","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/468402","title":{"rendered":"When to worry"},"content":{"rendered":"

Michael Kinsley has responded<\/a> to my post<\/a> addressing his “inflation nightmare”\u2014the spectre of hyperinflation:<\/p>\n

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I should have made clearer in my original piece that, at least to me, 13 percent inflation would be a catastrophe (just ask Jimmy Carter) even if it didn\u2019t spiral even further. The cost of climbing down from 13 percent was the worst recession since the Great Depression until the current one. So imagine having the double-dip 1980-82 recession on top of the 2008 \u2013 2010 (?) recession, with a federal deficit running far higher than Paul or almost anyone else could have imagined back in 2003. Some day I will look up the Economist leaders of the time and see if they shrugged off 13 percent inflation with a \u201cFile under things not to worry about\u201d…<\/p>\n<\/blockquote>\n

He’s misunderstanding me here. “File under things not to worry about” refers to hyperinflation. Concerning hyperinflation, I wrote:<\/p>\n

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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<\/blockquote>\n

That is, don’t worry about hyperinflation. About 13% inflation, I merely said:<\/p>\n

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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<\/blockquote>\n

I didn’t say not to worry about 13% inflation. I pointed out that hyperinflation, with which America has no experience, is a much different animal than 13% annual inflation, with which America does have experience. In fact, double-digit inflation is costly, a point I made repeatedly when discussing Olivier Blanchard’s recommendation that central banks consider raising inflation targets to 4%.<\/p>\n

IF<\/em> America were facing 13% inflation, I would<\/em> be worried. But another, fairly important, point is that America is not facing 13% inflation. Recall the image<\/a> of the 12-month percentage change in core producer prices:<\/p>\n\n\n\n
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Given low levels of capacity utilisation, 9.7% unemployment, and continuing weakness in housing markets<\/a>, it is very difficult to see from where sustained upward price pressure might originate.<\/p>\n

Mr Kinsley seems to want to argue for the risk of hyperinflation by political economy, saying that there is no other painless way to reduce the debt. But hyperinflation is by far the most painful of all of the options. It is the equivalent of holding a gun to the head of the legislature and saying, “balance the budget or I’ll shoot”. However painful balancing the budget may be, it’s better than the alternative.<\/p>\n","protected":false},"excerpt":{"rendered":"

Michael Kinsley has responded to my post addressing his “inflation nightmare”\u2014the spectre of hyperinflation: I should have made clearer in my original piece that, at least to me, 13 percent inflation would be a catastrophe (just ask Jimmy Carter) even if it didn\u2019t spiral even further. The cost of climbing down from 13 percent was […]<\/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-468402","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/468402","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=468402"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/468402\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=468402"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=468402"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=468402"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}