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Rediscovering the positives of inflation
Commentator David Frum.
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TEXT OF COMMENTARY
Bill Radke: As we heard earlier in the show, President Obama wants to double U.S. exports. He says export jobs are one way we can sail out of our economic doldrums.
Our conservative commentator David Frum sees another partial way out of our troubles. He's just not sure the Republican Party wants to hear it.
David Frum: The June jobs numbers were dreadful, down 125,000. Maybe it's just a blip; the end of the census sent a lot of workers home.
But there are other signs that the jobs numbers will continue bad over the next while: Consumer confidence plunged in June, after three months of rising optimism. Job creation in the private sector was only one-third its April level. Conditions in the housing market continue grim.
The Obama administration is fretting over what to do next. More aid to states? Some kind of second stimulus? Or just hang on and hope for the best?
My own Republican Party is equally perplexed. It opposes more government spending. It wants the Bush tax cuts extended. But the Bush tax cuts are in place now -- and they do not seem to have helped very much through these terrible two years.
I have a suggestion. I think we should overcome our inhibitions and rediscover the positive side of inflation. I know! I know! I'm a child of the 1970s too! I remember when menus came with little stickers affixed in a stack atop the original price. I remember crazed auction rooms where bidders scrambled to buy something, anything with their depreciating currency: paintings, suits of armor, Austro-Hungarian postage stamps.
But as awful as double-digit inflation was, single-digit deflation is worse. As triumphant as the victory over inflation was, we can't always be re-fighting the last war.
This is a country deeply in debt. Inflation reduces the burden of debt -- anonymously, impersonally, and across the board. I hope I don't sound too nationalistic when I note that a lot of that debt is held by our Chinese friends. They ran huge trade surpluses with the United States when times were good. Time now for them to contribute a little back.
Nobody wants to see wheelbarrows of money at the grocery store. But 3 percent inflation? Four percent? There are worse things.
Radke: Commentator David Frum is the editor of FrumForum. I imagine you remember inflation -- How would you feel about a return? We'd like your comments -- about inflation or anything else you hear on the program.
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I'm not exactly of the republican mold you are trying to speak to but I have to say that some of the comments have a ring of truth to them.
Bah, this country has stuffed itself to the gills with an economy based on debt, bubbles, and unsustainable growth (construction, services). Many want 'the jobs' back, but we've long since grown out of manufacturing and regular industry. The rich need something new to invest on (rather than more get rich schemes), the poor needs a new form of 'career work', and the middle class needs to be fully weaned off of credit and loans. Without that, we won't have the economy that can handle even 3% inflation.
Deflation..hurts, and BAD, but it can provide opportunities. It can teach the middle class to save and invest. It can calm the rich away from heavy-risk tricks and into long term sustainable growth (yes, that does means we end the "tax the rich!" mentality). As for the poor, make sure they get what they need to weather the storm then aim at making better quality education accessible to them (that DOES mean stop the "OMG SOCIALISM!" talk since it does mean handouts from the govt).
Deflation will let us export again, not trying to kill the rich will let them find the opportunity in that, and not starving the poor to death will mean a strong workforce to enter into that new opportunity.
Of course, that means we'll need policies from the Left and Right. How to get THAT without going Hard Right/Left or creating a civil war..well I'm stumped.
Two places to get money. Ask people for it (via taxes) or take it from them - ready or not here it comes (a monetary policy, chosen carefully to create inflation). Condition us to 3% inflation, and take it quietly; we'll go willing for now until we can vote to stop it. But, stealing is still stealing; being quite about it and disguising it as inflation, "The way things are" or a way to reduce our debts, is still stealing.
Since you brought up China, my question is how we would continue to get them to float our debt if we pursue an inflationary monetary policy. Who wants to be holding our currency if it's falling in value against its competitors? Having said that, I agree with the other comments that say inflation is coming. The alternative to unwinding our national debt is deflation, which is a political non-starter.
Without question inflation is coming but only after the ecomony starts to revive some years from now. There is no way that our debt can be paid any other way. I am a Nurse Practitoner and with significant manufacturing job losses in our area company paid health insurance is also lost. So our patients are forgoing preventative care that will cause serious problems for them in the future. With the jobs numbers down for June , a real disaster as in most normal times June is when all the constuction and farming allow more people work not less. With people less healthy less people employed and lots of well earned anxiety as to how the goverment and investment community is going to "fix" the economy. Things look like a depressionary spiral with no bottom. I also suspect the Republicans will put some one in the White House in two years with more tax cuts finishing off the economy and setting up a new deal like recovery in six years. Seems way out there...
Friedrich August Von Hayek : Inflation is probably the most important single factor in that vicious circle wherein one kind of government action makes more and more government control necessary. For this reason all those who wish to stop the drift toward increasing government control should concentrate their effort on monetary policy.
"Inflated" housing prices and the readily available mortgages that led to the current financial crises didn't seem to cause much inflation. Goods and services do not appear to be scarce enough to cause price hikes. So, any ideas on how to get a good dose of inflation into the economy? I would just print more money!!
There are indeed worse things than inflation. But while it reduces the value of debt, it also reduces the value of savings, and once you start it it's debatable whether you'll be able to stop it. And there are far better solutions that are still possible: Just drop this debunked idea that government spending is good for the economy and cut the budget, for instance.
As an aside, it's not entirely honest to call David Frum a "conservative." He's certainly more conservative, and thus usually more reasonable and sensible, than most of your commentators, but that's not saying much.
Mr. Frum doesn't say how the government will create inflation. To create inflation the government must create excess money. But it's not government but private banks via credit orgination that create most of the economy's money supply. Money=debt=credit. Therefore, we not only have a “credit crisis†we also have a “money crisis†Does anyone think money is easy to come by these days? If banks don't lend and people or corporations don't borrow (or pay their debts) – the money supply is decreased The Fed is printing money by buying bad bank debt, quantitative easing, and debt financed spending but not a rate fast enough to offset the economy's debt destruction. It will be politically difficult for the government to print enough money to offset the money destroyed by declining and bad debt. That's causing deflation and it is hard to stop.
I have always said that if it comes to a choice of the Scylla of inflation or the Charybdis of deflation, government will always choose inflation, for obvious reasons--that is, if they can manage it. However, the choice may not be the government's: deflation (shudder) could happen whether it wants it or not.
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