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Inflation in a Downturn, Snow in Summer
It may have been rude, but it would have been appropriate to include some expert commentary when reporting on the criticism of the U.S. stimulus package by Mirek Topolanek, the prime minister of the Czech Republic and current holder of the rotating presidency of the European Union. Mr Topolanek complained that the stimulus package would lead to inflation
At the moment, the enormous amount of unemployment and excess capacity is putting enormous downward pressure on prices raising serious concerns of deflation. It is difficult to construct a scenario in which inflation will be a serious problem in the current environment.
--Dean Baker
COMMENTS (7)
Dean, obviously he means (as does everyone else pointing this out) that the stimulus and monetary expansion create the liklihood of high or hyper inflation in the near future (perhaps 2 years from now).
Do you deny this and have a counter argument?
Posted by: Erik L | March 26, 2009 7:56 AM
Its easy for people to grasp the simple Milton Friedman model that "printing money" always and inevitably leads to inflation. In a complex and confusing world many people cling desperately to paradigms that are easy to understand and reject anything complex. So they ignore all the complex factors that determine the ultimate money supply, and they ignore the role of the velocity of money, and they ignore the role of excess capacity, and they retreat into the simplistic "printing money causes inflation."
Posted by: AndyfromTucson | March 26, 2009 10:34 AM
"it would have been appropriate to include some expert commentary"
It may be rude to pint this out but the track record of "expert commentary" about the current crisis is hardly better than the track record of Mr. Topolanek, although Dean Baker does a better job than most.
Now I have a question which I do need an expert to answer: if printing money doesn't cause inflation, what does it actually do? Has the perpetual motion machine after all been invented, have alchemists found the philosopher's stone? Is it really possible to create money out of nothing? Thanks for explaining this to us Dean.
Posted by: piglet | March 26, 2009 11:22 AM
"... the liklihood of high or hyper inflation in the near future (perhaps 2 years from now)."
Seriously? All the naysayers who didn't see this financial crisis coming are now confidently predicting events 2 years in the future?
Posted by: Anonymous | March 26, 2009 3:21 PM
Dean is right. CPI-U, January to January was zero--that's zero. For the rolling three month average, CPI-U is negative. That's negative--falling prices. And if inflation does begin, there's plenty of monetary policy to fight it. Because interest rates also are effectively at zero.
Posted by: macheath | March 26, 2009 6:01 PM
I was not a naysayer and I assume that some of those predicting high inflation were not either.
Ad Hominem attacks are not convincing counter-arguments.
Posted by: Anonymous | March 27, 2009 7:45 AM
Stagflation. We are facing a repeat of the late 70's early 80's. There's no other reasonable scenario.
Posted by: Tom Faranda | March 30, 2009 12:29 PM