In normal times, inflation is regarded as an insidious evil which must be contained at all costs. But in a crisis like this, the conventional wisdom is turned on its head, and you hear cries of “Inflate!” Suddenly, falling prices are the enemy and the idea of running up the printing press, or quantitative easing, makes logical sense to people.
But we should worry about this rush to reflate, not just because of the direct economic impacts, but because of what it says about our economy and political system.
Excessive inflation is a typical outcome in oligarchic situations when a weak (or pliant) government is unable to force the most powerful to take their losses – high inflation is, in many ways, an inefficient and regressive tax but it’s also often a transfer from poor to rich.
This is us.
The government has demonstrated that it has no desire to make the powerful take its lumps, and so its printing up money, taxing savers and everyone else who doesn’t have an account at the Fed in order to prop up the powerful. Our strategy with respect to the bailout is a sign of a capture government.
This is why we’ve been so sceptical about deflation fears. The government and the media push so hard the idea that deflation is the mother of all devils, you have to wonder what the propaganda campaign is all about.
Economist Jörg Guido Hülsmann said the only people who have to fear deflation are the nation’s “false elites”. Let’s see… bankers, home builders, excessive borrowers, government officials. Yep, that sounds about right.