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Tuesday, April 10, 2012

Lest you think I jest

On April 5th, I made the seemingly absurd claim that "problem isn't that [Paul Krugman's] solutions are old, failed policies from the 1930s, but that they are old, failed policies from the 13th century" in reference to the inflation created by Gaikhatu Khan's paper currency in 1294.

Absurd, one might well have concluded. Crackpottish. Surely it must be exaggeration for rhetorical effect, at the very least.

And yet, on that very same day, Paul Krugman published an article in the New York Times entitled Not Enough Inflation, in which he declared:
[L]arge parts of the private sector continue to be crippled by the overhang of debt accumulated during the bubble years; this debt burden is arguably the main thing holding private spending back and perpetuating the slump. Modest inflation would, however, reduce that overhang — by eroding the real value of that debt — and help promote the private-sector recovery we need. Meanwhile, other parts of the private sector (like much of corporate America) are sitting on large hoards of cash; the prospect of moderate inflation would make letting the cash just sit there less attractive, acting as a spur to investment — again, helping to promote overall recovery.

In short, far from fearing that more action against unemployment might lead to an uptick in inflation, the Fed should actually welcome that prospect.
I rest my case.

Labels:

63 Comments:

Anonymous FUBAR Nation (Ben) April 10, 2012 12:36 PM  

Paul Krugman is promoting thievery on a mass scale and should be held accountable. Paulie can't get it through his head that creating money does not create wealth. You have to produce things Paulie because if it were that easy we would be in a raging recovery.

The idea that people actually pay money to attend this guy's lectures in order to hear this type of garbage is one of the reasons this country is FUBAR.

Anonymous DrTorch April 10, 2012 12:45 PM  

Sounds like racketeering to me.

Anonymous Mr. B.A.D. April 10, 2012 12:45 PM  

I think Krugman was invented by you Vox, in order to make Kaynesians look stupid. well....nevermind.

Blogger Bob Wallace April 10, 2012 12:47 PM  

Not enough inflation? Since the creation of the Federal Reserve Bank the dollar has lost 99% of its value. How much more inflation can there be, 99.99999%?

Blogger Mike43 April 10, 2012 12:52 PM  

At the University of Minnesota, this was a key monetary theory. Get in debt now, because inflation will minimize the real cost of the debt.

It seemed nonsensical that anyone would lend money in that environment. And it seemed to make borrowers dishonest. But that never bothered the Keynesians. That's why I've always associated Keynesian theory with dishonorable behavior.

Anonymous dh April 10, 2012 12:54 PM  

> Paulie can't get it through his head that creating money does not create
> wealth.

He didn't say it creates wealth, did he? He's calling for devaluation as a means as a short of private-sector stimulus.

Anonymous Josh April 10, 2012 12:56 PM  

Vox,

A question.

Isn't this basically Scott Sumner's crusade over at the Money Illusion? That basically as long as we accept the idea of fractional reserve banking and lending at interest, we are forced to do level targeting of Nominal GDP (either through innovation or inflation) in order to avoid periodic shocks. And that the decrease in wealth that occurs is the lesser of two evils.

I'm not saying I support Sumner's course as the best possible action, but I'm wondering if he's correct if one accepts the above two conditions of the financial markets. Rather than taking the Austrian perspective.

If this has been discussed and dismissed before, please point me to the posts so I can read up.

Thank you.

Blogger Russell Morrison April 10, 2012 12:58 PM  

Debasing the currency to solve debt was ancient history by the 13th Century. Dionysius did it in Syracuse ca. 400 B.C.

Anonymous fanofcarolus April 10, 2012 1:00 PM  

And this guy makes more money than I do.

Blogger Vox April 10, 2012 1:09 PM  

Debasing the currency to solve debt was ancient history by the 13th Century. Dionysius did it in Syracuse ca. 400 B.C.

And Diocletian almost 100 years before that. But Gaikhatu Khan's monetary inscriptions were the first I've seen to make Keynesian-style promises.

Blogger Professor Hale April 10, 2012 1:12 PM  

Ben had it right. All that debt is owed TO someone. Krugman is recommending stealing it from them instead of paying it back. And while he is at it, he will be stealing it from everyone who has savings, even people who did not borrow or lend. Finally, he will be impoverishing millions of people on fixed incomes like the elderly, who cannot just go out and get a job to earn money at the current inflated value.

Obviously this will be beneficial to the people paying back their debts with inflated money. But then, stealing other people's money usually does work out well for the thief.

Anonymous Stilicho April 10, 2012 1:26 PM  

By Krugman's standards, we should just inflate the money supply by a robust 10% annually. That would put us at about a 7 year Jubilee schedule. The stupid, it burns!

Anonymous Roundtine April 10, 2012 1:26 PM  

"Not enough inflation? Since the creation of the Federal Reserve Bank the dollar has lost 99% of its value. How much more inflation can there be, 99.99999%?“

There can be a lot more inflation. If you start from 100% and lose 99% of your wealth, you have 1%. You then lose 99% and are left with 0.01%. Then you lose 99% and are left with 0.0001%. Then another 90% loss and you arrive at 99.99999% devaluation.

Anonymous DonReynolds April 10, 2012 1:29 PM  

One of the recurring themes in American History has been the constant conflict (fought out in politics) between the "hard money" advocates and the "easy money" advocates on the other. This has NOTHING to do with John Maynard Keynes. If you want to bother, you can trace back over two hundred years of battles where one side won, then the other. Even today, there is no general agreement on the proper course on the central currency issue.....indeed, I have heard too many investors argue for BOTH sides in the same discussion! This has always been an issue and neither side has ever delivered a knock-out blow.

Anonymous FUBAR Nation (Ben) April 10, 2012 1:34 PM  

dh, so you think tricking people into believing that their real wealth is increasing will actually improve the economy? This is the type of thinking that has dominated for so long and is the reason we're in this mess. Don't worry, we'll get serious about the deficit someday. You're bs ponzi-schemes are starting to blow up starting with Greece which spent a ton of money and went, wait for it, bankrupt.

Anonymous Roundtine April 10, 2012 1:39 PM  

DonReynolds,

This is why I favor the freegold position espoused on FOFOA's blog. Allow a fiat currency, operated however the easy money guys want, to exist alongside gold.

Anonymous Conrad The Crazed April 10, 2012 1:54 PM  

Hey Paul Krudman, riddle me this:

If battling unemployment by inflating the money supply is the solution, why doesn't the Fed simply print up enough 'money' to pay all working age people a $250,000 yearly salary? By your logic, this would kick-start the hell out of the economy and solve all the problems created by those evil republican tea partiers.

Anonymous Rantor April 10, 2012 1:55 PM  

Inflation is evil and Krugman is it's prophet. While we all want him to get what he deserves, he and all the other Keynesians are dragging us along with them.

The bankers are immune as they give each other seven digit bonuses. One Goldman Sachs VP bonus would pay off all my debt and fund the rest of my life. That is what all the printed money is going, paying inflated bonuses to the bankers.

Blogger TontoBubbaGoldstein April 10, 2012 2:15 PM  

@ Conrad the Crazed. Krugman IS advocating basically what you riddle. When it doesn't work out....he'll argue that 250K per worker wasn't *enough*. OT: Mad props to my *namesake* on winning the Masters. Dude owns the ORIGINAL General Lee!

Anonymous Stilicho April 10, 2012 2:15 PM  

With apologies to the writer of The Streets of Laredo:

The Halls of Marriner Eccles

As I walked out in the halls of the Fed,
As I walked Marriner Eccles one day,
I spied a young banker all wrapped in green fiat,
Wrapped up in green fiat that once was his pay.

I see by your outfit that you are a banker,
These words he did say as I slowly walked by,
Come sit down beside me and hear my sad story,
For I'm shot in the wallet and today I must die.

'Twas once in the boardroom I used to go prancing,
'Twas once in the boardroom I used to go play,
First to the Vampire and then down to Dimon's,
Got shot in the wallet, I'm dying today.

So boil the frog slowly and inflate the cash lowly,
And play the dead march as you carry me along,
Take me to the printer and lay the cash o'er me,
For I'm a Fed banker and I know I've done wrong.

Get six jolly banksters to carry my coffin,
Get six politicians to bear up my pall,
Put bundles of greenbacks to cover my coffin,
Greenbacks to deaden the clods as they fall.

Then spend your wealth slowly and borrow but lowly,
And shed not a tear as you think of my shame,
And in the grave throw me and lay the sod o'er me,
For I'm a Fed Banker and I know I'm to blame.

Go bring me an ounce, an ounce of real money,
So that I can hold it, the banker then said,
Before I returned, his soul had departed,
And gone to his Maker, the banker was dead.

So we printed more slowly and borrowed but lowly,
And bitterly wept as we bore him along,
For inflation destroyed us, the sweet easy money,
We had encouraged the banker even though he'd done wrong.

Anonymous Anonymous April 10, 2012 2:18 PM  

http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/11/the-inflation-fallacy.html

Inflation's costs are not what you say they are.

Anonymous Vidad April 10, 2012 2:21 PM  

"Debasing the currency to solve debt was ancient history by the 13th Century. Dionysius did it in Syracuse ca. 400 B.C.

VOX: And Diocletian almost 100 years before that. But Gaikhatu Khan's monetary inscriptions were the first I've seen to make Keynesian-style promises."

I think you have BC and AD mixed up, unless I'm thinking of the wrong Dionysius.

Blogger Nate April 10, 2012 2:22 PM  

Thank you anonymous for demonstrating why so few people pay any attention to Canadian Economists.

Blogger Vox April 10, 2012 2:24 PM  

I think you have BC and AD mixed up, unless I'm thinking of the wrong Dionysius.

Yep. Wasn't paying attention. But you take the point. They all inflated to get out of debt. But the Khan appears to have been the first to actually promise societal prosperity as a result.

Anonymous James Dixon April 10, 2012 2:24 PM  

> http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/11/the-inflation-fallacy.html

In the brief section of it I read, it completely ignores the effects of inflation on savings.

Anonymous Vidad April 10, 2012 2:27 PM  

The sick irony here is that savers - those who follow the wisest course - are actively targeted for destruction.

The moronic masses of borrowers and consumers are rewarded for their folly while the bedrock wealth creators are eaten away.

That's what makes the Keynesian talking heads so loathesome. "Pry the remaining wealth away from the productive and throw it to the rooting pigs at the lender's teats."

Anonymous Vidad April 10, 2012 2:30 PM  

@Vox

Your identification of the Khan's innovation is a sharp insight.

I had actually wondered about the paper money promises of Keynes and where they fit into history. The closest I had gotten (on minimal research, I freely admit) was the ill-fated French paper boom that built New Orleans. "Look, we're all rich now!"

Anonymous FUBAR Nation (Ben) April 10, 2012 2:31 PM  

You would think people like Krugman would pick up a history book and figure out that the garbage they want to pull only ends in disaster.

Krugman is just like Greenspan in that they both can weasel their way out of anything, except for the fact that Greenspan knew better. Krugman's a power mad sociopath and Greenspan is a classic opportunist. The f'er Greenspan starts talking truth once he's out of the bankers cherry blossom throne and can't be held accountable for his crimes.

It's all FUBAR.

Blogger Nate April 10, 2012 2:45 PM  

It should be noted... that the claim Vox has made is not that inflation is an evil monster... the claim he has made is that it will not fix the problem.

it is not the cost of inflation that is the problem... though I can go on at length to explain its costs in real terms... the point is... there is no benefit.

Anonymous Vidad April 10, 2012 2:49 PM  

@Nate

No net benefit, perhaps. Actually, it's probably a loss, long-term.

But couldn't it be argued that it's a "benefit" to those who receive the money first?

It's a bit like the other thread. Yanking a tiny amount of cash by recycling an expensive AC.

Blogger Nate April 10, 2012 2:55 PM  

i don't deny that inflation works at first. After all... before the new money gets into the system... its valued at the same higher rate at the old money.

Never the less... Because its the government doing the inflating it is invariably mal-invested... and thus the money is spent doing actual harm... not good. And that's before we get the trickle down reduction in purchase power.

Anonymous FUBAR Nation (Ben) April 10, 2012 2:57 PM  

It results in cantillon effects whereby the people that receive the money first have higher purchasing power because the new money or credit hasn't bid up prices yet.

It isn't a problem if you're talking about gold or silver miners producing gold and silver money because a huge amount of resources has to go into digging up the money. In the case of the Fed and the banks, they haven't engaged in any productive activity and are vampires on the productive classes of society. They are scum.

It's all FUBAR.

Anonymous The CronoLink April 10, 2012 3:51 PM  

And to think this buffon will give a speech at a forum carried out by my university just a few days from now. Because that's what Mexico needs now: more bad advice.

Anonymous Matt Strictland April 10, 2012 3:51 PM  

What Krugman and the others are really trying to do is mix capitalism with a variant of the Brakteaten money,

“Between the 12th and the 15th century in Europe a money system was used called "Brakteaten." Issued by the respective towns, bishops and sovereigns, it not only helped the exchange of goods and services but also provided the means of collecting taxes. Every year the thin coins made from gold and silver were "recalled," one to three times re-minted and devalued on an average about 25 % in the process. Since nobody wanted to keep this money, people instead invested in furniture, solidly built houses, artwork and anything else that promised to keep or increase its value. During that time, some of the most beautiful sacred and profane works of art and architecture came into existence. "For while monied wealth could not accumulate, real wealth was created." We still think of this time as one of the cultural culmination points in European history. Craftsmen worked a five-day week, the "blue" Monday was introduced and the standard of living was high. In addition, there were hardly any feuds and wars between the various realms of power. However, people obviously disliked the money which lost so much at regular intervals. Finally, towards the end of the 15th century, the "eternal" penny was introduced and with it came interest and accumulation of wealth..." article by Margrit Kennedy

It works to some degree as an example with zero base budgeting or the fact that welfare benefits can't be accumulated but I am not sure its a useful fit at all with modern industrial society.

Certainly this spurred consumption and production in the 15th century but the problem facing us is beyond capital mal-accumulation and farther into excess efficiency and a vast production surplus

Think of this as parable, if demand is based on people spending money from wages and all the jobs are outsourced and automated, how is any demand going to be created? The answer is, it won't be. Paradoxically a maximally efficient wage system (that is nearer to zero) is unable to be sustained whereas the opposite, highly inefficient systems while they raise costs and lower standards of living is fully sustainable except in time of war ...

Anonymous Lysander Spooner April 10, 2012 3:54 PM  

Krugman is a stupid, evil little man, like the 99% of people who occupy positions of power in the evil empire known as the USSA, stupid, evil little people shoving their sh*t sandwich down our throats while this nation spirals ever downward.

Is is getting close to time to head for the hills and watch the barbarian invasions from a distance?

Anonymous DrTorch April 10, 2012 3:54 PM  

Not enough inflation? Since the creation of the Federal Reserve Bank the dollar has lost 99% of its value.

Pure fiction

Anonymous dh April 10, 2012 3:55 PM  

> dh, so you think tricking people into believing that their real wealth is
> increasing will actually improve the economy? This is the type of thinking
> that has dominated for so long and is the reason we're in this mess. Don't > worry, we'll get serious about the deficit someday. You're bs ponzi-schemes > are starting to blow up starting with Greece which spent a ton of money and > went, wait for it, bankrupt.

I said no such thing. I think you have reading comprehension problem. I responded to someone who alleged that Krugman said that inflation would create wealth, when in fact, he said no such thing.

Good or bad, inflation tends to punish savers, which Krugman rightly points out is holding back a lot of liquid cash assets to the sidelines of the economy. Corporations are hoarding cash to hedge against uncertainty. They can afford to do so because the loss of some percentage of that capital to inflation is less bad than losing more of it on a failed expansion, takeover, merger, or cash laden project.

It's all more of the same, but in no way did I or Krugman attempt to claim that inflation would (a) create wealth or (b) suggest that tricking people is going to fix the economy.

The theory that Krugman is working on is the same stimulus theory that keeps failing: pulling forward demand by devaluing or borrowing future productivity. People react to incentives, but only to the point which they are able.

Anonymous Stilicho April 10, 2012 3:56 PM  

Rather naive of Krugman to think that destroying the value of savings would spur investment rather than the savers simply finding another way to store value.

Anonymous Geoff-UK April 10, 2012 4:02 PM  

@Nate,

Regarding Inflation: There is no benefit to the public at large=I agree wholeheartedly.

If you are the initial recipient of the new money, however...inflation is kick-ass. Loyd and Jamie must ejaculate in excitement as they rise to greet each morning at the thought of more free credit from Gentle Ben.

Blogger Nate April 10, 2012 4:21 PM  

"Pure fiction"

So you suck at math. Not something to brag about.

Anonymous Geoff-UK April 10, 2012 4:25 PM  

[[[QUOTE]]] Stilicho April 10, 2012 3:56 PM

Rather naive of Krugman to think that destroying the value of savings would spur investment rather than the savers simply finding another way to store value. [[[END QUOTE]]]

Oh, they have an answer for that, dude.

April 5th, 1933, FDR Criminalizes Private Ownership of Gold.

Note: Executive Order versus Act of Congress. "Stroke of the pen, law of the land, pretty cool!" -Paul Begala

http://en.wikipedia.org/wiki/Gold_confiscation_order

Uh, notwithstanding Article I, section 10 of the U.S. Constitution which forbids states from making "any Thing but gold and silver Coin a Tender in Payment of Debts."

You can argue whether that allows the Fed govt to issue paper backed by nothing--but it clearly and explicitly forbids states from issuing paper. And it also certainly provides clear and explicit protection to states wishing to let their citizens transact in gold or silver.

In an Orwellian turn, the Fed govt declared that gold and silver could NOT be tender in payment of debt with the passage of the Gold Reserve act of 1934, which post-hoc broke contracts that had gold clauses.

Anonymous Gen. Kong April 10, 2012 4:34 PM  

Apologies for going OT, but it's just too interesting to pass up. As many know, D'Won Mocha Messiah handed over some oil-rich Alaskan islands to Russia recently, and made a remark to Medvedev about how things would be more "flexible" for him after the erection, which is all rather curious in light of the fact that His Holiness is not much liked by Russia, or by Boss Vlad. At any rate, RT and other Russian media have actually paid some attention to the fishiness of the nativity tale concocted by D'Won and his Ministry of Truth Pals. Now the pieces begin to fall in place:

Lookie here and Lookie here. Betch Boss Vlad knows exactly who he is, and who his daddy be. The putrid stench of Sodom-on-Potomac must surely reach to the very highest points of heaven.

Blogger John Regan April 10, 2012 4:47 PM  

It's bizarre how little Krugman understands money and banking. Unless the fed prints up money and actually buys real stuff with it - in which case of course the fed would own the stuff - there is no way to increase the money supply and cause "inflation" without simultaneously creating even more unpayable debt.

However much money the fed and the banks create, it's not going anywhere or doing anything because the debt overhang is too great. The borrower of last resort is the government, but we're already $20 or $100 trillion in the hole, depending what you count.

Steve Keen has begun advocating an "intelligent, modern jubilee" where everyone gets a couple hundred thou, I assume, through an injection into their bank accounts. Which is better than nothing or anything Krugman has come up with, but it's still got huge problems.

Inflation is the least of our problems but it's certainly no solution.

Anonymous Stilicho April 10, 2012 4:59 PM  

It's bizarre how little Krugman understands money and banking. Unless the fed prints up money and actually buys real stuff with it - in which case of course the fed would own the stuff - there is no way to increase the money supply and cause "inflation" without simultaneously creating even more unpayable debt.

All your debt belong to Ben.

Blogger Bob Wallace April 10, 2012 5:00 PM  

"Pure fiction"

Don't have a clue, do you?

Anonymous Stilicho April 10, 2012 5:07 PM  

Oh, they have an answer for that, dude.

April 5th, 1933, FDR Criminalizes Private Ownership of Gold.


Doesn't have to be gold. Land, silver, lead, fine art, etc. Point is, those who are saving money rather than investing it in productive enterprises are generally doing so because they do not want to risk that wealth in any type of investment at this time. Devaluing the medium of savings will not make them change their minds about the risk of investing, but it will encourage them to find alternate means of preserving wealth and purchasing power.

Anonymous Boogeyman April 10, 2012 5:08 PM  

Krugman's shiny, little teddy bear button like eyes have always scared me. He has a vacant, yet slightly bewildered gaze that makes me imagine him possessing a basement filled with abused children chained to the plumbing.

The fact that he is so energetically wrong about everything, and insists on being so no matter how many times he's proven wrong, only increases the creep factor.

Anonymous DonReynolds April 10, 2012 5:36 PM  

Roundtine...."This is why I favor the freegold position espoused on FOFOA's blog. Allow a fiat currency, operated however the easy money guys want, to exist alongside gold."

Of course, it is funny that the original "easy money" was bimetalism...the free coinage of silver alongside the already existing gold. This was particularly disturbing to our "trading partners" who were still on the gold standard. They roundly objected to bimetalism.....especially the use of silver. The USA at the time was awash with silver.

Anonymous Matt Strictland April 10, 2012 9:13 PM  

Stilcho, if people end up putting money into other things it a positive for the inflationist ilk. That means stuff has to be produced or at least bonds will be bought instead of people holding cash.

Either way it gets spent and in their thinking its circular flow baby. Personally I'd call that the pretense of knowledge myself but thats not exactly original is it ?

Anonymous Vidad April 10, 2012 9:28 PM  

@Matt

Interesting hypothesis. And, in the infinitely complex world of economics, it's always good to plan for contingencies. Since I ride the fence between inflation and deflation, I basically stick to the Old Testament version of economic wisdom. No debt, no co-signing, cash on hand and well-tended land. I was greatly tempted to get a home equity line and sink 10k into gold when it was at 900, but I held back. My debt allergies won't even let me jump on a sure profit. Sigh.

I believe that in the Whiskey Zulu scenario cash will be flowing towards some goods - but those goods will generally not be consumer goods. Bye-bye iPhone. People will actively be getting rid of their cash as fast as they can - into ammo, silver and other items that won't bring back the halcyon days of yore. Look at the bubble in guns right now. I'm sure that's NOT what the banksters were planning.

Anonymous zen0 April 10, 2012 11:12 PM  

I believe that in the Whiskey Zulu scenario cash will be flowing towards some goods - but those goods will generally not be consumer goods. Bye-bye iPhone. People will actively be getting rid of their cash as fast as they can - into ammo, silver and other items that won't bring back the halcyon days of yore. Look at the bubble in guns right now. I'm sure that's NOT what the banksters were planning.

The traditionally ingrained position of the central bankers is designed to avoid the Whiskey Zulu. This is one of the central purposes of their existence. Whiskey Zulu scenarios have evolved OUTSIDE of the jurisdiction of the CB's.

The continued global reach of the Central Bankers I think has precluded this scenario, but in doing so, may have unleashed something just as hideous....the stalemate.

People will continue to consume, but without pleasure or hope.

Anonymous DrTorch April 11, 2012 7:46 AM  

"Pure fiction"

Don't have a clue, do you?


Evidently not. Why don't you provide some basis for your claim. You know, back up what you say instead of clinging to some tired, readily disproven myth.

Anonymous Stilicho April 11, 2012 8:19 AM  

Stilcho, if people end up putting money into other things it a positive for the inflationist ilk. That means stuff has to be produced or at least bonds will be bought instead of people holding cash.

Either way it gets spent and in their thinking its circular flow baby. Personally I'd call that the pretense of knowledge myself but thats not exactly original is it ?


Matt, there would price inflation in whatever assets were chosen, but that would not necessarily lead to increased production like the keynesians claim. But, yes, their thinking is certainly circular on this issue. I suspect Krugman believes that MV = production, when all it really means is that there is movement. Then again, Krugman typically ignores production to focus exclusively on consumption. Perhaps he believes that Santa's elves are magically controlling production based on the latest readings of reindeer entrails.

Anonymous James Dixon April 11, 2012 10:41 AM  

> Why don't you provide some basis for your claim.

Well, will you take the Bureau of Labor Statistics?

http://www.bls.gov/data/inflation_calculator.htm

They claim that $1 in 1913 is equivalent to $23 today. 1-(1/23)=.956 to three figures. So by their figures the dollar has lost almost 96% of it's value. So 99% may be an exaggeration, but not a significant one.

Anonymous DrTorch April 11, 2012 11:25 AM  


They claim that $1 in 1913 is equivalent to $23 today. 1-(1/23)=.956 to three figures. So by their figures the dollar has lost almost 96% of it's value. So 99% may be an exaggeration, but not a significant one.


That is some evidence.

I would say it's a big exaggeration.

I would also say the BLS numbers are nigh meaningless:

http://mjperry.blogspot.com/2008/09/high-cost-of-living-vs-cost-of-living.html

Certainly misleading at the very least.

Anonymous Jake April 11, 2012 11:44 AM  

That is some evidence.

I would say it's a big exaggeration.

I would also say the BLS numbers are nigh meaningless:

http://mjperry.blogspot.com/2008/09/high-cost-of-living-vs-cost-of-living.html

Certainly misleading at the very least.


I don't think you understand the discussion at all. That cost of living as a percentage of income has decreased has nothing to do with inflation or the value of a dollar.

You're looking at percentages... that should be your first clue that your link is irrelevant.

Anonymous DrTorch April 11, 2012 1:12 PM  

I don't think you understand the discussion at all. That cost of living as a percentage of income has decreased has nothing to do with inflation or the value of a dollar.

Then you miss several important points.

1. People worry about the price of gold since 1933, yet ignore the price of indium, titanium, diamonds. Or other metrics such as light bulbs or long distance telephone calls.

2. No one cares about purly monetary discussions of inflation. In fact they are a tautology, and utterly useless if you limit them to that.

People care if their prices are high, and what they can afford. That's the only real point in studying "inflation." Anyone not discussing that doesn't understand the issue.

3. That being said, the CPI is nearly useless in this regard. I conceded it was a support for the original claim, b/c that's honest. However, since the CPI is worthless, it's not strong support.

Anonymous Jake April 11, 2012 2:18 PM  

The price of gold is just among the best available metrics because it is relatively unaffected by market conditions other than the money supply, particularly in the long term. The price of titanium, light bulbs, diamonds, telephone calls, have all gone down considerably due to increases in productivity at the same time as they've gone up due to inflation. You can't look at the price of a good or basket of goods and say "ah, the government's not inflating the currency" just because prices hold steady or decrease. The government inflated substantially in the 1920's but prices in general didn't show it because of improved productivity. This doesn't mean there wasn't inflation (increase of the money supply) or that people weren't generally worse off due to the inflation than they would have been without it.

Based on this you can probably see I agree that the CPI is not a very good statistic, but your link seemed to be saying "people are spending less of their income on essential goods today than they were in the past" and by implication that inflation has not harmed the economy or the masses who make it run, but this does not in any way follow.

The best measure of inflation would simply be total money supply, I don't know those numbers off the top of my head, but I suspect if you looked at them you'd see at least a 20x increase which would be consistent with a >= 95% devaluation of the dollar that you claim is an exaggeration. Even with this there is the question about how to define the money supply, but such limitations are inherit in applying empirical analysis to economics. Just about any definition consistently applied will show the same trends.

Blogger Bob Wallace April 11, 2012 2:37 PM  

"Certainly misleading at the very least."

The dollar has lost 96% of its value instead of 99% and you think that's misleading?

The dollar losing 96% of its value because of the unconstitutional Federal Reserve Bank is okay with you?

Do you even understand that decreasing prices because of productivity has nothing to do with increases in prices because of the inflation of money and credit?

Anonymous Jake April 11, 2012 2:57 PM  

Based on the M1 the number of dollars in circulation increased by 3,519% just from 1959 to 2006, which would imply a devaluation of 97.2% just in that frame.

Other money supply figures show a devaluation of 96-97% from 1959 to 2011, which suggests that the original claim of 99% over a longer time period is far from "pure fiction"

Anonymous Zartan April 11, 2012 8:41 PM  

Oy, inflation not harmful? Anonymous must not have heard about recent history of the country called Zimbabwe (Goodwin Avoided). They tried inflation, in 2008 they had 231,150,888.87% inflation before the currency was ABANDONED. It cost BILLIONS to take a bus to the local market, on ebay you can get Trillion dollar bills.

Anyone that insists inflation is not harmful is ignorant and has no historical perspective.

See also: Germany between the two wars.

Anonymous Geoff-UK April 12, 2012 4:53 PM  

@Zartan,

Buy a Trillion dollar bill at Amazon. It is too much fun to wave at a girl in a bar and ask if she wants to sleep with a Zimbabwean trillionaire. When she gets offended, tell her on second thought she's not hot enough, but your African prince billionaire buddy behind you might be interested.

Anonymous Chad April 13, 2012 4:07 PM  

I get the feeling that this blog just gave away the ending of Krugman's upcoming book. Inflation will save us!!

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