Krugman pwns Laffer on inflation

[FUCK THE POLICE]

http://krugman.blogs.nytimes.com/2009/06/13/way-off-base/


Way off base

Mark Thoma and David Altig both react to Arthur Laffer’s assertion that the increase in the monetary base presages huge inflation.

Let me add, for the 1.6 trillionth time, we are in a liquidity trap. And in such circumstances a rise in the monetary base does not lead to inflation. I had a couple of charts in my lectures this past week. First, Japan:

Next, America in the 30s:

Notice, in this case, that a Friedman-style focus on a broad monetary aggregate gives the false impression that Fed policy wasn’t very expansionary. But it was; the problem was that since banks weren’t lending out their reserves and people were keeping cash in mattresses, the Fed couldn’t expand M2.

While I’m doing charts, the people at CFR have updated the borrowing picture:

Government borrowing, while huge, has not quite offset a huge plunge in private borrowing.

 

[FUCK THE POLICE]

Well that's great. The background of those images is set to be the same as the background on the page, if you have black background you can't see the black text. Just go to the article to get a better view.

 

[uscitizen]

btw I read somewhere that Japans debt was 90% of their GDP or somesuch really high number. By many's reasoning they should be buried by now.

 

[FUCK THE POLICE]

btw I read somewhere that Japans debt was 90% of their GDP or somesuch really high number. By many's reasoning they should be buried by now.

168%. Which is ridiculous. They are not falling apart, but if they do not straighten out immediately they may wind up in a situation where almost all their tax revenue is going to pay the debt, in which case they will have no way out but to default.

I'm not going to say that 90% isn't significant. It is. We have been compounding deficits which everyone agrees were functionally useless, for decades, upon each other. I support the current deficits because I believe that the only way out of this recession is for the government to directly invest in the economy, to avoid a liquidity trap which would probably reduce revenue so much that we'd have just as much debt at the end anyway. We've been at up to 120% before, and it did not kill long term growth rates, and we were able to shrink that significantly in the 50's, 60's, and 70's. After this year, we should follow the same pattern.

 

[FUCK THE POLICE]

Actually, I did not say that right. We ARE in a liquidity trap, which is why monetary policy no longer works and direct government stimulus must be used.