Some People Need To Redefine Their Understanding Of Inflation

Paul Krugman

Photo: Dave Shankbone via Flickr

I see some commenters reacting to the failure of major inflation to break out by insisting that inflation is defined as an increase in the monetary base — that is, the bank reserves plus currency that are what increases when the Fed “prints money”. As it happens, that’s wrong: very old dictionaries defined inflation as a rise in money and/or credit, but the modern usage is, of course, a rise in prices.
But that’s really a side issue. Nobody would care about the size of the monetary base except for the belief that increasing the base leads to a rise in prices. That’s not a question of definitions, it’s a question of your model of the economy. The underlying belief of all the people accusing Ben Bernanke of doing something dastardly is that “printing money” has caused or will cause high inflation in the ordinary sense.

Read the rest of this post at The New York Times.

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