6.24.2010
So what is wrong with a little deflation? What’s so bad about the cost of living falling say, 1/2 of a percent per year? Wouldn’t it be great if things got cheaper? Not in Paul Krugman’s eyes (or others in the academic fantasy land camp such as former Bush advisor Gregory Mankiw).
Here Acting Man Blog follows up on the Krugman follow up to German Economic advisor Axel Weber’s response to his attack on German policy – he brings up excellent points:
Mankiw worked for Bush, Krugman is more of a liberal (in an American sense of the word) – BOTH camps want inflation – you know why? Because if they can jack everything up on a yearly basis, they can justify cost of living increases in wages hoping to FOOL people because the payraise doesn’t help when everything one buys increases in price as much or MORE than the pay raise. Also, it allows inflation to make the present value of our national debt smaller (paying debt in future dollars is cheaper).
However, for those of us in the real world who work with seniors and others living off savings for example, the current policy of zero interest rates along with rising cost of living is KILLING people. Mr. Krugman doesn’t see this because I am sure Princeton is paying for all of his bills as he carries along in his academic lala land. I know seniors, with $100,000 in life savings, who relied on their 5% CD interest to pay their property tax who are now earning less than 1% and they are suffering tremendously – thanks Ben Bernanke, thanks Krugman et al – in order to “inflate,” and to bail out Citibank, AIG, and the like. Savers (the prudent) are being punished to bail out the imprudent – the ones that Mr. Krugman says did not contribute to the housing bubble.
Remember my article about David Einhorn (no lesson learned from this recession) – the lesson we all learned was, if you are a prudent saver, and don’t take unnecessary risk, you will be punished by policy – lower rates on savings, higher taxes for bailouts and such. If you are a fool and spend everything you make, then take out an equity loan and spend even beyond what you make, and don’t pay your debts, you will be REWARDED with lower rates, bailouts, and remodifications.
Lesson – don’t save, just spend, spend spend!
