Hyperinflation?
Tim Swanson sends me this article saying hyperinflation is impossible. I’m not convinced. Let’s not forget, folks, that during 2008 the narrow M1 money supply rose by 17 percent. The public expanded its demand for cash balances and sopped it up, that’s true. But I think Bernanke has more than offset the “second order deflation” that Hayek and others worry about.
I would need to research this more, but off the top of my head I think it’s important to note that–if I’m not mistaken–a lot of the base expansion during the last quarter of 2008 was in the form of propping up banks and temporarily holding their “toxic” assets as collateral on short-term loans. If I’m a bank and the Fed keeps me solvent by letting me constantly roll over 28-day repos on my mortgage-backed securities (I am probably slightly off on the lingo), then I’m not going to be keen on lending out the new reserves.
But if instead, the Fed buys those mortgage-backed securities from me at a price that keeps me solvent, then what would stop me from making new loans at that point? So the fact that Bernanke keeps announcing new trillion dollar plans, some of which involve the outright purchase of assets, makes me expect M1 and M2 to start exploding very soon.
Finally, if you need another type of argument to be worried about hyperinflation, consider: Brad DeLong links to another Keynesian who is saying stuff like this:
We need not worry about hyperinflation. Or rather, in a world where hyperinflation is a real possibility, hyperinflation is the last thing we’d be worrying about. There are certainly circumstances under which America could face uncomfortably high inflation down the road, the result of which would most likely be Fed tightening and a painful double-dip recession. But there are two key points to be made about this.
One is that “uncomfortably high” given present conditions is pretty darn high. In the midst of deep recession, inflation isn’t nearly as nasty as it might otherwise be. For one thing, when dollars are getting weaker people don’t want to hold dollars, and so they spend them, which is a good way to make a dent in the shortfall in demand. For another, inflation will help housing markets clear. And for another, a weaker dollar should goose American exports.
The second, and related, point is that inflation is one of many concerns that we face at the moment. Fed independence is a big issue, and 20% annual inflation is something we’d prefer to avoid, but so is, say, a 6% contraction in output. I’d love for Congress to allocate all the necessary funds and then turn around and take the necessary steps to rein in the deficit, but given actual political constraints I’m extremely glad the Fed has done what it’s done — I prefer to see some action appropriate to the scale of the downturn taken and roll the dice with inflation….
Another way to think about this is that maybe all the folks worried about inflation should instead focus their ire on the supermajoritarian rules constraining Senate action.
Yep, every time I read the above I become more convinced that I need to buy more gold and silver.
UPDATE: Here is a Mises Daily making the case “for” hyperinflation. (As in, the case that it will happen–not like someone making the case for handwashing.)
Waxman-Markey: Staring Into the Abyss
One of the “joys” of my job with IER is that I have to comb through the actual bills that the great deliberative body in DC generates. For example, try sifting through the Waxman-Markey climate and energy bill [pdf], a 648-page monstrosity that got dumped on us yesterday.
If you open it, check out “SEC. 416” starting on page 560. It explains how the Executive branch will be able to establish a whole new program of “international reserve allowances.” Basically, if the president (or in practice, the agency to which he delegates this power) decides that compliance with greenhouse mandates is causing US producers to lose market share, then any importer of the relevant foreign goods will have to enter a new market for importing credits (just as utilities will have to buy allowances to emit carbon). Call me cynical, but it seems like a complicated way to slap foreign goods with tariffs in the name of saving the planet.
Physics and Government
Before reading this NYT article on Freeman Dyson, I had never really thought much about how close physicists and the government became during World War II. But it seems the physicists learned the subtleties of procurement quickly:
Dyson has been hostile to the Star Wars missile-defense system, the Space Station, the Hubble telescope and the superconducting super collider, which he says he opposed because “it’s just out of proportion.” Steven Weinberg, the Nobel physics laureate who often disagrees with Dyson on these matters, says: “Some things simply have to be done in a large way. They’re very expensive. That’s big science. Get over it.”
Every time I read the above sentences, the funnier they get. By the end of it, make sure you realize how hilarious it is that the scientists demand their billions (?) for, ahem, “the superconducting super collider.”
Oh, you know what the physicists say they are searching for? The “Theory of Everything”; they even write it TOE. These people are really really smart, no doubt about it. But then it’s not surprising if they overrate their importance, since no outsider would really be qualified to point this out to them.
Another thing I just noticed: Isn’t it a funny coincidence that the shill for Big Science got a Nobel Prize, but Dyson hasn’t (and I think some guy in the article claimed Dyson was robbed by the committee)?
Amazing Article on Freeman Dyson
A few people sent this NYT article on physicist and jack-of-all-trades Freeman Dyson, but it was the enigmatic von Pepe’s email that pushed me over the top.
It is really amazing. This is one interesting guy.
The article focuses on the climate change stuff, but I find it more interesting that the government (?) would fund the Institute for Advanced Study so well. I mean check out the big guns that hung out there. So isn’t it amazing that the government got this one thing right? Isn’t it odd that you and the government agree on talent, in this one area but in no others?
A clue might come from the role of “Jason”:
In the 1970s, Dyson participated in other climate studies conducted by Jason, a small government-financed group of the country’s finest scientists, whose members gather each summer near San Diego to work on (often) classified (usually) scientific dilemmas of (frequently) military interest to the government. Dyson has, as he admits, a restless nature, and by the time many scientists were thinking about climate, Dyson was on to other problems. Often on his mind were proposals submitted by the government to Jason. “Mainly we kill stupid projects,” he says.
But now the followup: What kind of a guy says with a straight face, “My important job is to make sure government projects aren’t stupid”?!?! That’s like saying, “Mainly we kill low-brow beer commercials.”
The AIG Bonus Brouhaha
I didn’t catch this when it ran, but it is now in my archives at Townhall and there are a dozen comments, so it must have… Anyway here is my take on the AIG bonus stuff. An excerpt:
The public was right to be outraged. But the real problem was the bailout in the first place. No matter what AIG does, it will now be with taxpayer money. Obviously, even a company that the government seizes is still going to pay its employees, pay its heating and electric bills, and buy raw materials. If citizens don’t object when their government starts nationalizing companies like they do in South America, then the citizens shouldn’t be shocked when their tax dollars get spent by the government’s handpicked CEO.
Hannan Says Nannah to British PM
Robert Wenzel linked to this; it is really sweet. What diction!
Shhh! Don’t Tell Anyone, but the PIG to the Great Depression and the New Deal Exists
Yesterday I got a box of 10 copies of my new book. Longtime readers know that I am nothing if not modest, but I have to say that this book is sweet. In all seriousness, it used to terrify me when people suggested I give a talk at a bookstore for my first PIG book, since I couldn’t imagine passersby getting drawn in by my discussion of cartels.
However, when it comes to cartels created by the New Deal, now you’re talking. I can truthfully say that there is some powerful stuff in this new book that is sadly lacking from the current political buzz.
Here’s the deal: In order to maximize the chance of getting onto bestseller lists, the publisher wants to hold fire until launch day (April 20). But, it also helps if–when people hear me on the radio and check out Amazon–they see a bunch of favorable reviews from people who have clearly read the book.
So, for any of you who were planning on buying it from Amazon, it’s probably most strategic if you pre-order the book and get it as soon as possible, and then write a favorable review on Amazon. (If you hate the book, just remember what your mom said about not having anything nice to say.)
But to be clear, don’t buy 15 copies for your liberal relatives just yet. The mass buying should be postponed until the week of April 20.
Good luck, comrades. May the force be with us.
"What’s Bernanke Thinking?!"
Since I’m speculating on motives, let’s turn to the Fed chairman. Let’s drop the super conspiracy theory and assume for the sake of argument that Bernanke really does call the shots. (In reality, I think it is entirely possible that Bernanke knows he can’t do such-and-such or else he might accidentally take too many sleeping pills.)
Now we know that presidents have always tried to expand the power of the Executive Branch. It’s no “conspiracy theory” to say that, it is simple Public Choice economic analysis.
OK so you run the Federal Reserve, and here you have this prime opportunity to write checks for trillions of dollars while the CPI actually falls. (!!!) You’ve got a pretty good gig going, because no political leader can really challenge you, since a vote of no confidence in the Fed chairman would literally ruin the world economy.
So your one worry is that you won’t be reappointed when your present term expires (in 2010). What do you do? Why, I think getting the biggest corporations in the world–not to mention other central banks–utterly dependent on your handouts is a pretty shrewd move. If Obama starts floating trial balloons about canning you, you can float trial balloons about “preventing inflation expectations from becoming unmoored” which would require you to raise interest rates to 30%. I think the president might back off after Goldman Sachs or the British government called him up and had a little chat.
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