in a New York Times op ed titled Oligarchs and Money. I am strongly going to suggest that you will want to read the piece and keep it handy.
He starts with the latest World Economic Outlook of International Monetary Fund, which in its analytical sections
in effect makes a compelling case for raising inflation targets above 2 percent, the current norm in advanced countries.He provides the history of aiming for too low a level of inflation, which he says demonstrates that low inflation is just as bad as modest deflation. As he writes
An earlier edition of the World Economic Outlook analyzed historical experience with high debt, and found that countries that were willing to let inflation erode their debt — including the United States — fared much better than those, like Britain after World War I, that clung to monetary and fiscal orthodoxy.
He notes the IMF implies but does not say this, because it is oustide the conventional wisdom, of which he notes
In a direct sense, what we’re seeing is the power of conventional wisdom. But conventional wisdom doesn’t come from nowhere, and I’m increasingly convinced that our failure to deal with high unemployment has a lot to do with class interests.By now you should be getting the thrust of this column:
- inlflation and inflation targets are too low
- that benefits the rentier class, which sits on cash
- that keeps unemployment too high
He does not directly address the political implications that this, combined with the unleashing of accumulated wealth through corporate expenditures in Citizens United and the gutting of most of what remained of campaign finance reform this week means the ability to address the economic reality of which he writes will become even more difficult.
Please keep reading.
Krugman writes that
Moderate inflation turns out to serve several useful purposes. It’s good for debtors — and therefore good for the economy as a whole when an overhang of debt is holding back growth and job creation. It encourages people to spend rather than sit on cash — again, a good thing in a depressed economy. And it can serve as a kind of economic lubricant, making it easier to adjust wages and prices in the face of shifting demand.The target of 2%, that of the conventional wisdom, has clearly been demonstrated to be insufficiently low to avoid a liquidity trap: after all, the US has effectively been in a liquidity trap for 5 years, despite historically low interest rates approaching zero intended to stimulate the economy, with inflation remaining low but unemployment remaining stubbornly high. Oh, and as a class argument, in the attempt to avoid their fair share of taxes the oligarchs and their political minions have seen public employment slashed across those states controlled by their political minions with the concomitant stagnant employment situation in those states. Thank you Koch Brothers and your various organizations, including especially ALEC.
Krugman is blunt - the implications he is drawing from the IMF report is clearly demonstrated by the rich, personally and in corporate treasuries, sitting on cash. But the report does not state its obvious conclusion, so Krugman writes
So why is the obvious unsayable? One answer is that serious people like to prove their seriousness by calling for tough choices and sacrifice (by other people, of course). They hate being told about answers that don’t involve more suffering.That is, more suffering for others, not those at the top.
Which is what we would have in any form of the so-called grand bargain.
Krugman notes that after World War II the US took the path of inflation andlow interest rates to wipe out the debt burden facing the country. Somehow this became labeled as "financial repression." And yet, as he opines,
But who wouldn’t prefer modest inflation and a bit of asset erosion to mass unemployment? Well, you know who: the 0.1 percent, who receive “only” 4 percent of wages but account for more than 20 percent of total wealth. Modestly higher inflation, say 4 percent, would be good for the vast majority of people, but it would be bad for the superelite. And guess who gets to define conventional wisdom.By the way, that last hot link will take you to a Krugman blog post where he expanes this idea further. You will want to read that as well.
I am paying close attention to what Krugman has to say, in part because I may change teaching positions next year to one where a principal part of my responsibilities would be teaching AP Economics, both Macro and Micro. I see a clear understanding of economics as being a necessary part of helping people understand what is happening to what is left of our political democracy.
Which is why I will push fair use and conclude as does Krugman in his final paragraph:
Now, I don’t think that class interest is all-powerful. Good arguments and good policies sometimes prevail even if they hurt the 0.1 percent — otherwise we would never have gotten health reform. But we do need to make clear what’s going on, and realize that in monetary policy as in so much else, what’s good for oligarchs isn’t good for America.Read the whole thing.
Follow all the hot links.
You will be glad you did.