New York Times columnist, award-winning economist and best-selling author Paul Krugman has spent much of the past four years strenuously arguing against conservatives who fear that any attempt by the Federal Reserve to boost employment will inevitably lead to runaway inflation. Despite the Fed’s pumping money into the economy for much of this time with interest rates remaining extremely low, however, conservatives haven’t given up on touting this phantom fear. So, once again, it’s up to Krugman to take them to task.
In his latest column, Krugman attempts to probe the thinking of those beholden to what he calls the “inflation obsession” and figure out why, exactly, these people can’t stop pushing for policy based on little more than their superstitions and ideology. “One answer,” Krugman writes, “is that obsessives failed to distinguish between underlying inflation and short-term fluctuations in the headline number, which are mainly driven by volatile energy and food prices.”
Another answer, writes Krugman, is the fact that the obsessives “failed to understand that printing money in a depressed economy isn’t inflationary. I could have told them that, and in fact I did. But maybe there was some excuse for not grasping this point in 2008 or early 2009.”
Ultimately, though, Krugman determines that the consistency of these fears — the way they cannot be penetrated by outside forces like facts — speaks to a fundamentally political conviction on the part of the obsessives, one that’s born from anti-government absolutism:
While a few conservatives believe that the Fed should be doing more, not less, they have little if any real influence. The overall picture is that most conservatives are inflation obsessives, and nearly all inflation obsessives are conservative.
Why is this the case? In part it reflects the belief that the government should never seek to mitigate economic pain, because the private sector always knows best. Back in the 1930s, Austrian economists like Friedrich Hayek and Joseph Schumpeter inveighed against any effort to fight the depression with easy money; to do so, warned Schumpeter, would be to leave “the work of depressions undone.” Modern conservatives are generally less open about the harshness of their view, but it’s pretty much the same.
The flip side of this antigovernment attitude is the conviction that any attempt to boost the economy, whether fiscal or monetary, must produce disastrous results — Zimbabwe, here we come! And this conviction is so strong that it persists no matter how wrong it has been, year after year.
Finally, all this ties in with a predilection for acting tough and inflicting punishment whatever the economic conditions. The British journalist William Keegan once described this as “sado-monetarism,” and it’s very much alive today.
In the end, Krugman acknowledges that the Fed has been far less conservative than inflation obsessives want, but still believes the government’s response to the economic crisis has been less forceful than it would be if the inflation obsessives weren’t still warning of impending disaster. “I’d argue that the clamor from inflation obsessives has intimidated the Fed,” Krugman writes, “which might otherwise have done more. And it has also been part of a general climate of opposition to anything that might address our continuing jobs crisis.”