Weimar, Zimbabwe, Here We Come

Or maybe not.

Megan McArdle invokes one of the two standard bogeymen to suggest — classic fallacy of the extremes — that It Could Happen To Us.

And I cannot disagree too strongly with the notion that the US can’t default because we can always print money.  It isn’t even technically true–Zimbabwe eventually ran out of hard currency to buy the ink it needed to print the money to sustain its hyperinflation.

Now she might be right, but Weimar and Zimbabwe sure don’t count as a representative or even metaphorical models. One was ravaged by losing a world war, the other by … Mugabe. Neither was the most powerful country in the history of the world, or the issuer of the world’s reserve currency. Please: stop with Weimar and Zimbabwe.

She really displays her lack of economic understanding, though, with this one:

You can argue that a small amount of inflation is preferable to the alternatives, distributing the pain very broadly in order to avoid the intense dislocations of a sudden shock.

Broadly!? Inflation has its hugest effects on the stock of financial assets. Give us three our four percent inflation instead of one or two, and all of those financial assets — $55 to $60 trillion+ in the U.S. — decline in value by an extra percent or two a year. The relative value of real assets goes up.

And: 87% of financial assets are held by the top 20% of households. Real assets (tangible and intangible, measurable and unmeasurable) are far more broadly held.

Inflation transfers money and power from holders of financial assets to everyone else.

That‘s why the Megan McArdles of this world object so frantically to inflation — even though many of them (notably Megan McArdle) don’t seem to even know why they’re objecting so frantically.







7 responses to “Weimar, Zimbabwe, Here We Come”

  1. Chris T Avatar
    Chris T

    Her main point was that inflation only works once you have deficits under control. Otherwise lenders will just demand higher interest rates and we’ll be back to where we were.

  2. Asymptosis Avatar

    @Chris T
    But the assumption underlying her point is that inflation is fundamentally — even fully — driven by the size of the federal deficit. Which isn’t even close to true. You can have higher inflation without higher real — or even nominal — interest rates.

  3. Ted K Avatar

    Just imagine how misinformed and off-kilter Atlantic magazine’s readers are. By reading the business editor’s posts on a regular basis, they could actually be more financially illiterate than a 5 year old with a blank slate. Canada has currency called the “loonie”. Maybe McArdle could give out virtual credits for site visits denominated by units of “dummies”.

  4. Dave Raithel Avatar

    I can hardly pass up the opportunity to remind people that Ms. McArdale is so full of it that she once complained about her toilets backing up. Call me a liar and prove me wrong. She complained about her toilets in the Atlantic MSM, omitting that she is so full of it…it being the cause. And then when she bought a house, well THAT was NPR Market Watch worthy news in Kai Rysdell’s o-pinion …. that a white curmudgeon so full of it, her toilets did not work, bought a house, was news worthy …

    And people wonder why I have nothing nice to say about white people …

    Oh yeah, that Lowry dude with sexual obsession about the milf from Alaska – HE likes to complain about light bulbs…

  5. Ted K Avatar

    I have always found “Marketplace” show on NPR to be pretty good stuff (although admittedly it’s been weeks since I listened). The program that I think is way over-rated is “Planet Money”. They often get good guests on, but once they get them on ask the most retarded questions or want to insert political comments as they give the interview. The worst one I ever heard (and there have been many botched and incompetent interviews on PLanet Money) was when they had Mike Konczal and Tyler Cowen on to discuss financial reform. They had two young interviewers “conducting” the interview. Male and female and there was so much nervous giggling and slobbering, and Konczal couldn’t get 2 words in and Cowen had to interrupt the two to make some constructive comments. I couldn’t tell if the interviewers were two 15 year old brats trying to ask each other out to a rave party, or just the two idiot cousins of the NPR producers. I swear to God, hunt this interview up online and listen yourself, if they haven’t since edited it and cut out the worst parts you’ll see, it’s really bad.

    They also botched an Elizabeth Warren interview, the first I have ever heard Miss Warren raise her voice in (she should have walked out on the interview the guy was so rude) and another where Barney Frank basically told the guy (in not so many words) that he should have familiarized himself with the topic before he did the interview.

    I used to like NPR. Now they have these cooking shows, and travel shows, the show which is 99% about religion where the host tries so hard not to use the word religion you feel she might explode into flames or get some flesh eating disease if she said the “R” word. NPR is trying way too hard to be “high-brow”, it’s become so bad it’s like listening to William F. Buckley do his fake British accent all day long.

    I’m a Democrat—it’s been come so bad and crony like–I hope Congress does take away their funding. The local Universities and local communities would pick up the funding for stations and the programming would improve drastically. No more snobbish phoneys with some Long-Island/NYC raised Jewish producer having 16 year old mental maturity interns conducting interviews with policy makers.

  6. Asymptosis Avatar

    @Ted and Dave:

    In both cases — McArdle and incompetent NPR interviewers — I find myself agreeing with the tea-partiers re: supercilious, know-nothing, ivy-educated coastal elites. (Even while I fit quite squarely into that demographic.)

    The endlessly inter-nested ironies of our political situation never cease to astound me.

  7. Chris T Avatar
    Chris T

    My reading of her post is a bit more charitable. I don’t think she was saying deficits are a direct driver of inflation, but that the danger is holders of US bonds will eventually lose confidence in the face of continued high deficits and there will be a rush to redeem treasury bonds.

    The problem is not with deficits per se, but the failure to have a credible long term plan in place to reduce their size relative to GDP. “Trust us” has been the plan for the last thirty years and is getting less credible.