[OPE] Krugman on the fear of inflationary slackness

"Is there a risk that we'll have inflation after the economy recovers? That's
the claim of those who look at projections that federal debt may rise to
more than 100 percent of GDP and say that America will eventually have to
inflate away that debt - that is, drive up prices so that the real value of
the debt is reduced. (...) Yes, we have a long-run budget problem, and we
need to start laying the groundwork for a long-run solution. But when it
comes to inflation, the only thing we have to fear is inflation fear
itself." http://www.nytimes.com/2009/05/29/opinion/29krugman.html?_r=1

It's a sort of "in the long run we are all dead" argument. I think he is
technically right in the shorter term - the loss of confidence in economic
life exaggerates the financial severity of the real situation and thereby
makes things much worse - except that, obviously, the US could also import
considerable inflation, if the USD exchange rate drops and the cost of
imports (of commodities and capital) additionally rises. Krugman's argument
also obviously assumes that socio-economic stability is retained in the US,
so that US workers cope with job losses, property losses and pay losses with
a rugged-individualist Hayekian, screw-my-neighbour smile, or failing that,
believe that the Lord will provide, perhaps via his Samaritan plutocrats.

For Marxists, of course, confidence is class-defined, and different social
classes play different economic roles in society. The confidence of one
social class may be predicated on the lack of confidence of another.
Investors must be motivated to invest, and consumers must be motivated to
consume, but they are not motivated by the same kinds of things once the
realities of social class differences are introduced into the picture. That
is why economics cannot actually state the real truth about society.

J.

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Received on Fri May 29 17:15:37 2009