Paul Greenberg

You'd think any country that had gone through hyperinflation would be aware of the dangers thereof. And you'd be right. No one has been more critical of this administration's inflationary policies than the Germans. They remember the hyperinflation of the Weimar Republic -- much better, apparently, than we Americans remember the stagflation of the Carter Years.

To quote Wolfgang Schaeuble, Germany's current finance minister: "It doesn't add up when the Americans accuse the Chinese of currency manipulation and then ... artificially lower the value of the dollar."

But that's the whole point of Ben Bernanke's grand strategy as chairman of the Federal Reserve System. He says, and doubtless believes, that what the American economy, and maybe the world's, needs right now is a little inflation. There is, of course, no such thing as a little inflation. Any more than a lady can be a little pregnant. It is in the nature of inflation to grow. Till just a little inflation becomes a lot. (Recommended Reading: "A Tiger by the Tail," Friedrich Hayek's classic treatise on, or rather against, inflation.)

Not just inflation but the expectation of inflation, says Doctor Bernanke, is a good thing. As he told a conference of fellow gurus at Jackson Hole (they always meet in the best places), "an increase in inflation expectations could become a benefit."

The great apostle of inflation in our time, Paul Krugman, has it all worked out. Call it Krugmanomics, which is not to be confused with real-world economics any more than Dr. Krugman's Nobel for his earlier, scholarly papers is to be confused with the slapdash punditry on display in his newspaper column.

Professor Krugman is often described as a Keynesian, but that's a libel on John Maynard Keynes, who understood the dangers of inflation early on. (See his "The Economic Consequences of the Peace," published in 1919, for an early warning against what he called "inflationism.")

Ben Bernanke seems to have read his Krugman. It would be more assuring if he were reading Milton Friedman, who caught on to this game long ago. As the Carter Years neared their sad anticlimax, it was Milton Friedman who warned that, instead of being a cure for unemployment, inflation would only bring more of it down the road.

The great rhetorical advantage of the inflationists is that, if their policies don't work, and one economic stimulus after another fails to stimulate the economy, at least to the extent they promised, then they can explain it's only because not enough of their advice was taken. Not enough money was printed!

Much like the player at the roulette table who keeps doubling his bet every time he loses, the inflationist believes that all he has to do is double down and eventually he'll win a fortune. Of course it'll be in worthless currency by then, but why spoil the fun by mentioning that minor detail?

Inflation is the quick fix that doesn't fix, not for long. It's a remedy that only aggravates the disease. Lest we forget, it wasn't till the Reagan Recession drained the inflation out of the economy that the long-running Reagan Recovery began.

But try telling that to Ben Bernanke, aka Helicopter Ben, who earned that sobriquet in honor of the theory that the economy could be strengthened and prosperity assured just by increasing the money supply -- much like dropping currency out of a helicopter.

Or as Dr. Bernanke once put it in an all too revealing footnote to an academic paper, "people know that inflation erodes the real value of the government's debt and, therefore, that it is in the interest of the government to create some inflation."

Now that he's chairman of the Fed, he can create a lot of it, and he doesn't need a helicopter to do it, just the authority to buy another $600 billion's worth of Treasury bonds.

If anybody questions the wisdom of that approach -- Barack Obama certainly doesn't; indeed, the president supports it -- then Chairman Bernanke can point out that, however deep the government goes into debt, we only owe the money to ourselves!

Besides, these bonds are guaranteed, aren't they? Right. Just the way Fannie Mae's and Freddie Mac's were. No wonder people no longer use the expression, "sound as a dollar."

To be fair, the president is scarcely unconcerned when it comes to matters fiscal and commercial. Just the other day, speaking from Jakarta, that key listening post when it comes to American monetary policy, Mr. Obama warned that the global economy is becoming unbalanced. He took especial aim at countries that are "intervening significantly in the currency markets to maintain their advantage." That's telling off the Fed. If unintentionally.

If there's one thing this administration is out to supply in even greater abundance than ever cheaper dollars, it's unintentional irony.

Chairman Bernanke is a font of irony all by himself. Last weekend, he was lecturing the Chinese about how they're unbalancing the global economy by keeping their currency artificially low. Which is much the same policy he advocates for this country -- as the Chinese, Germans, Brazilians and others at the Seoul summit were quick to point out, Dr. Bernanke isn't about to prescribe his own medicine (Keep your currency strong!) for the Fed. That would risk being consistent.


Paul Greenberg

Pulitzer Prize-winning Paul Greenberg, one of the most respected and honored commentators in America, is the editorial page editor of the Arkansas Democrat-Gazette.


 


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