I first heard this little gem of wisdom from an orderly who worked in the emergency room of this sprawling teaching hospital attached to the University of Minnesota. Because this mega-university came with a labor pool, over-educated orderlies were pretty common. I believe my friend was a philosophy major. He was commenting on the difference between the medical subspecialties and how they handled trauma. He was warning me that we might have more business than usual in the OR because the surgeons were staffing the ER that night.
Over the years I have heard this line from many sources—it's actually something of a Producer Class favorite. And it most certainly describes the economics profession as embodied in Rogoff and Reinhardt. The neoliberals owe their triumph to their victory over those soft-on-inflation Keynesians. And when they staged their intellectual coup d' etat in the 1970s, one's credentials were determined by how harsh you were willing to be to fight inflation.
Four decades later, and the moonie-like babbling about inflation can been seen in the comments threads about inflation on economic sites like Business Insider. In the face of an 1930s-style economic calamity, everybody still mouths the same platitudes about the evils of an expansionist monetary strategy. In their world, Bernanke and his program of quantitative easing will lead to the hyper-inflation of Zimbabwe. They just KNOW that Japan's cheaper Yen strategy will fail because they also KNOW that no sane person would EVER want a cheaper currency. I don't know what it is called, but these folks are singing lustily from the same songbook. Not surprising since they probably came of age when the job definition of the world's central banks had been reduced to the enforcement of price stability.
Only one problem—there is no inflation. Deflation is the problem. And those economists who believe that inflation is the greatest threat to civilization they can imagine, may soon discover that they have the wrong tools to understand the real economy. And if they made the serious mistake of believing inflation is the ONLY economic problem worth being concerned about, they must either relearn their profession or be utterly obsolete for the next 40 years.
The Biggest Economic Story Of The Year Has Been Fooling Economists Around The World
Sam Ro | May 12, 2013
Bank Of America Merrill Lynch "The big story this year is not the US spending sequester, the China slowdown or the ongoing European recession," says Ethan Harris, Bank of America Merrill Lynch's top global economist.
"The big story is inflation, or more precisely, the lack thereof."
From Harris' note to clients on Friday:
...After peaking in the summer of 2011, inflation has steadily fallen globally and in both the emerging and developed markets economies (Chart 1) Our global inflation index goes back to 1996 and over that period inflation has averaged 3.1% overall, 1.9% in DM and 6.6% in EM; the corresponding numbers for this March were 2.2%, 1.3% and 4.0%. Of course there are some exceptions: inflation has been defying gravity in the UK for a number of years and is high in some major EM economies such as Brazil and Mexico.
The weakness has come as a surprise to economic forecasters and an even bigger surprise to many market participants. Critics of the major central banks have repeatedly warned that easy policy would lead to runaway inflation. However, in reality inflation is falling, not rising...
Harris ran twenty years worth of numbers and showed that a growing monetary base, which is happening thanks to quantitative easing, does not correlate well with inflation.
Bank Of America Merrill Lynch"For example, Table 1 shows the correlation between the growth in the US monetary aggregates and CPI inflation at various lag lengths," he wrote. "The correlation is always small and half of the time has the wrong sign – strong money growth “causes” low inflation."
Below is BAML's inflation surprise index. As you can see, economists have been overestimating inflation around the world.
Bank Of America Merrill Lynch more
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