31 May 2009

Krugman vs. Murphy on Inflation: Two Men Enter, One Man Leaves

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I’m not even going to bother linking to a post; any reader for more than a month knows that I am expecting significant price inflation in 2010, and I think we will see it kicking in later this year. (If people want to link to my specific predictions in the comments, feel free.)

For a while I was mad because I thought Paul Krugman would be able to explain away what happened, in case I am right. But in a recent column Krugman leaves no wiggle room at all. After going through the economic analysis of why there’s no inflation risk right now, Krugman says:

All of this raises the question: If inflation isn’t a real risk, why all the claims that it is?

Well, as you may have noticed, economists sometimes disagree. And big disagreements are especially likely in weird times like the present, when many of the normal rules no longer apply.

But it’s hard to escape the sense that the current inflation fear-mongering is partly political, coming largely from economists who had no problem with deficits caused by tax cuts but suddenly became fiscal scolds when the government started spending money to rescue the economy. And their goal seems to be to bully the Obama administration into abandoning those rescue efforts.

So he has no wiggle room at all. If he’s accusing the people who predict inflation of doing so just to discredit Obama, then Krugman EITHER

(a) believes there is no intellectually defensible reason to predict high inflation right now, and hence that’s why they must be saying it,


(b) knows full well there is a risk of inflation–Krugman is a sharp guy after all–and he is himself engaging in political spin.

So if I’m right and large price inflation comes by the end of 2009, this column alone will prove that Krugman either botched his macroecon big time, or he is a character assassin. We’ll let him choose, if and when the time comes.

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