What kind of fool gets into a public argument about economics with Paul Krugman? In the April Atlantic, there is a column by me expressing alarm about the possible return of debilitating inflation, or even hyperinflation, as the only way that a government unable either to cut spending or raise taxes will be able to reduce the burden of the national debt. I acknowledged that all the big-name economists, including Krugman, think differently. Writing in his New York Times blog, Krugman demonstrates that at least I got that part right.
Krugman says that I mistakenly conflate inflation and hyperinflation, although "textbook economics...makes a real distinction" between the two. I will confess that I was not aware of this distinction. I thought hyperinflation was inflation out-of-control. Mea culpa. However:
(1) Krugman should stop bullying people with accusations of economic ignorance. I would never pretend to know a tenth of economics Paul knows. But if he means, in calling this distinction a matter of "textbook economics [subtext: you idiot]," that economic textbooks make this distinction, he is wrong. Or at least no such distinction between inflation and hyperinflation is made, despite an extensive discussion of inflation, in the leading economics textbook, by Harvard Professor Gregory Mankiw.
(2) Krugman's definition of hyperinflation--"when governments can't either raise taxes or borrow to pay for their spending, they sometimes turn to the printing press"--is more or less precisely what I wrote that I was afraid of. I suppose there's a difference between the government printing money to pay off its debts (Krugman's definition) and the government printing money to reduce the real value of its debts (my fear). But not much of one.
(3) Krugman, Brad DeLong, Matt Yglesias and others make the point that there is no current economic evidence of inflation on on the horizon. I conceded as much in the original piece. But using Krugman's definition, hyperinflation is the result of explicit policy choices by public officials. There is a "real distinction" between this and inflation ordinaire, which results naturally from the interplay of economic forces. Therefore, the fact that there is no sign of inflation today says very little about whether there may be hyperinflation tomorrow.There are reasons to worry that our political leaders may opt for inflation even if there is no economic evidence of it happening naturally. (Of course the interplay of economic forces can force the hand of public officials. But if we go down this road, we are muddying that key distinction between hyperinflation and inflation.)
I have been waiting for Paul Krugman to tell me how we are going to handle the debt, once we get this recession out of the way. No, really. There's no economist whose judgment I trust more. (About economics, that is.) I've been all for the stimulus and the jobs bill and even, I guess, the sundry bailouts. But don't we at some point have to start paying the money back? And how are we going to do that? Krugman's failure (unless I've missed it) to give us an answer to that question is one of the things that makes me worry.
A final word to Matt Yglesias, who thinks my problem is "thinking too moralistically about the economy," because I express doubt that we can escape without pain from the dilemma we find ourselves in. Obviously (or perhaps not) this is a prediction and not a hope. I am not in favor of pain. I just don't see any way to avoid it. Yglesias apparently believes that we can escape our fiscal dilemma without pain. I would like to know how. And if there is such a way, why have we denied ourselves for so long? Why do we ever bother to show fiscal restraint? Why have taxes at all? Why deny ourselves anything money can buy? If $15 trillion in debt can be a freebie, why not $30 trillion or $60 trillion?