Paul Krugman, Inflation, and Gentle Tightening

This was Krugman's latest headline. The Fed Should Raise Interest Rates, but Gently. Tightening is obviously necessary but getting it right calls for caution, flexibility and humility.

This is like telling your kids that you are going to lose weight but only one pound per week. Your kids know you and they realize that (a) this is a total lie, (b) this is impossible, or (3) you are in a food coma and don't know what you are saying.

Why do I say this? Largely because I never lose weight for more than a day, and because Paul Krugman doesn't care a wit about inflation -- if it means we might have to trade off some employment/output to reduce the rate of inflation.

It sounds like a cruel thing to say but history proves the point.  I have lost weight at times but apparently I care more about eating that 16 ounce T-bone than about moving down to a size 36. As for Krugman it sounds really good to stand against rising inflation but the truth is that he cares more about other things -- things that reliably pump up the government's budget, aggregate demand and ultimately inflation. 

Look at the title and read some of the article. He uses the word gently. Then he uses words like caution, flexibility, and humility.

Really? What do those modifiers mean to you? Honey -- go on a diet again and this time do it gently. Really?  Have great humility as you try to shed that half of a pound today. Come on folks -- the words tell the truth. If the slightest thing starts to go wrong as we apply pressure against inflation -- GAME OVER. Be more gentle honey. 

Welcome to the real world. You sit on the sea saw and your friend moves up. You get off and your friend moves down. Period. Unless you have a rubber sea saw.

Please ask Professor Krugman for all the episodes -- anywhere in the world -- where policymakers have been able to gently, gradually, and with caution, flexibility and humility been able to reduce the inflation rate. Then ask him how many times governments have waited while inflation soared and then created a recession with their too much too late policies. 

Why does it usually work out this way? The answer is simple.

Waiting is often better than doing. Honey, I am pretty sure my leg is not broken. Let's wait a while before I have the doctor look at it. You know that if the doctor thinks you have a broken bone he is going to give you pain and suffering. Put it off a while. So what if you can't walk. Maybe it will feel better tomorrow. 

Krugman is the head cheerleader for the liberal progressive wing. He knows that the right policy will be painful right away. He knows that the reason for the inflation is probably because our friends in the government spent too much of our money. Maybe they spent too much on defense. Maybe too much on poverty. Maybe too much on whatever. 

If government spending too much on these things and the Fed monetizing these debts is the cause -- then the solution is to reverse them. Ouch. Higher taxes? Lower spending? 

Krugman wants to sound reasonable with his words. But he knows that if a hammer to the head causes a headache -- then you should remove the hammer. That's it. Words like gentle, caution, and humility only are meant to put things off. Go ahead and hit yourself in the head with hammer -- but do it more gently.