27 January 2009

Hyperinflation & the Stimulus Package

Dr Peter Boettke makes a point that really needs to be made about the inflationary effects of dumping almost a trillion bucks into the economy:
Government can raise revenue in one of three ways: (1) tax, (2) borrow and (3) inflate. The natural proclivity of democratic governments is to pursue public policies which concentrate benefits on the well-organized and well-informed, and disperse the costs on the unorganized and ill-informed. And there are strong reasons why this bias in policy making will also be biased toward shortsightedness --- pay out the benefits now, and worry about the costs down the road. Thus, the natural tendency for elected government officials is to borrow (rather than tax) and then inflate (rather than tax). Deficit financing, accumulating public debt, and monetization of the debt.

Now a lot of individuals have been claiming that economics as a scientific discipline has been rocked by our current crisis, both due to our failure to "predict" it and our inability to "fix" it with a consensus on the right public policy. And anyone not deeply read in the history of our discipline, or who received their university education in economics in the second half of the 20th century can be excused for such a reading of the situation. This would be the most logical interpretation one could arrive at --- especially if you not only listen to President Obama say that we must work past the dead ideologies of the past and the "do nothing" arguments (as if that argument has been actively pursued since Grover Cleveland).

Read the rest here (you can also click on the post's title):

Yep, the D president that last rocked my world was ol' Grover. The next D was Wilson who's on my list -- near the top too -- as Presidents who weren't ready for the deep end of the pool.

1 comment:

Anonymous said...

Wow. Grover rocked your world? You're way older than I am.