23 Sep 2009

Now Stagflation Is a "Contradiction"

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Before, the pundits had merely been asserting that there was little threat of price inflation because of high unemployment. But now Matt Yglesias has upped the ante (HT2 Bob Roddis):

Germany business and policymaking elites seem pretty uniformly convinced that the government has been preventing an unemployment explosion through unsustainable measures…and that in winter 2009-2010 unemployment is going to explode. They think that recent growth is a minor rebound from a very low level, and that future growth will be sluggish or possibly even feature a “double dip.” Nevertheless, they think we need to be very worried about inflation!. The one person who bothered to face up to this contradiction at all said that in his opinion there’d been a reduction in Europe’s growth potential, comparable to what happened during the oil shocks of the seventies.

Wow. So now it’s an actual contradiction to worry about price inflation at a time of high unemployment.

Yglesias goes on to give a history lesson and explain that Hitler’s rise to power had nothing to do with the German hyperinflation, which had ended five years beforehand. I’m not sure what Yglesias’ explanation is for the 1970s stagflation in the US, or the hyperdepression in 2008 in Zimbabwe, but I’m sure deregulation has something to do with it.

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