Paul Krugman has kicked off a meandering blogosphere discussion of why hard money policies are so stoutly defended, despite overwhelming evidence of the damage they are causing (see Martin Wolf on Europe today). As Wolf says, this is not just sad, it’s dangerous. He is right: it is difficult to imagine an important agenda that right now wouldn’t be helped with a load more NGDP growth*.
Krugman’s first stab is to look at the beliefs and motivations of the ultra-rich, and comes up with a puzzle: they really don’t gain from low rates, low asset prices, depressed economies, so why the anti-inflation hysteria? False consciousness perhaps, searing memories of the 1970s?
The peerless Interfluidity sees things differently: the very rich are not concerned with aggregate outcomes:
To the extremely rich, wealth is primarily about status and insurance, both of which are functions of relative rather than absolute distributions. The lifestyles of the extremely wealthy are put at risk primarily by events that might cause resources they wish to utilize to become rationed by price, such that they will have to bid against other extremely affluent people in order to retain their claim.
The ultra-rich like the stability of the graveyard, because there the gravestones are fixed, and they kinda like where they are positioned. A really stimulative policy, risking a little extra inflation for a chance to get a lot more growth and break out of this trap, risks shaking everything up. When you’ve climbed so far that you can look down on 9999 out of every 10,000 people you don’t like things being shaken up. So the rich are being highly rational.
Implicit in Krugman’s approach is the assumption that the rich and the decision-making elite intersect closely. But David Glasner says it’s not just the rich: when have you ever seen a worker’s rally in favour of a bit more inflation? Why have the Democrats never voted against the renewal of the Fed’s mandate? Can you imagine Labour attacking the Coalition from this angle, at the same time as pushing their Cost of Living assault?
In my grim mood, this leaves me with little hope. More NGDP might risk a little more inflation, and a lot more growth, plus a useful, gentle redistribution from creditors to debtors. I think it may be a missing part of the Piketty analysis (I haven’t read enough to know); while really high inflation hurts everyone, the moderate levels after the War helped enable the sorts of redistributive policies that brought inequality down. It allows a little more fiscal drag. But just about every section of society can be brought to campaign against it.
*OK, you might retort “Carbon emissions?”. But weak state finances have critically undermined the ability of nations to make the sort of deep, long investments needed to fix this one