Wednesday, June 27, 2012

How to think About Inflatioñerós and Deflationistas

From PostLibertarian:

Where is that hyperinflation, anyway?
I saw an article in a business magazine the other day about the inevitability of the coming inflation and how to prepare for it from a business perspective. There have been a lot of voices over the last few years predicting harmful levels of inflation, usually as a consequence of the Federal Reserve’s recent interventions in the economy. (Here are a couple classic examples from doom-pop site Zero Hedge.)

Bob Murphy was confident enough in the coming inflation to bet David Henderson $500 in 2009 that we would see 10% inflation by 2013. Through 2010 and 2011 gold and silver soared to records that many cited as evidence, but it never translated to the rest of the economy, and those metals are flat or down over the last twelve months. 10% inflation hasn’t come close to happening and it doesn’t look like it will.

(Of course, there are those like John “ShadowStats” Williams who claim that inflation really is much higher than the “official” levels, but that just doesn’t pass the smell test for me. From dollar menus to DVDs, most stuff has not doubled in the last 10 years, and in fact, a lot of it has gotten better and cheaper; the iPhone didn’t even exist until five years ago this Friday. Additionally, there’s a separate inflation measurement from MIT that closely tracks the official CPI and actually shows lower levels right now.)

Now I’ve only read a small percentage of the writings of both Bob and David, but they both seem to rest comfortably inside the libertarian-ish part of the political spectrum (unlike, say, the more predictable Paul Krugman). I don’t know why some libertarians aren’t worried about inflation (i.e. do they reject Austrian economic theories that some libertarians favor?), but there do seem to be a lot of libertarian-ish anti-government anti-Federal-Reserve folks that are very worried about it....
...If hyperinflation never comes to the US, the Paul Krugmans will continue to gloat about how much more right they are than those Austrian whackos. And if hyperinflation ever does come, the Austrian whackos will gloat about how much more right they are than the Paul Krugmans. But I think whoever’s right will just be more “lucky” than “right.” I don’t think anyone really understands what’s going on – though I certainly have my opinions about what sorts of policies will make such things more or less likely....