Addicted to Inflation
The
first step toward recovery is admitting that you have a problem. That
goes for political movements as well as individuals. So I have some
advice for so-called reform conservatives trying to rebuild the
intellectual vitality of the right: You need to start by facing up to
the fact that your movement is in the grip of some uncontrollable urges.
In particular, it’s addicted to inflation — not the thing itself, but
the claim that runaway inflation is either happening or about to happen.
Rick
Santelli, one of the network’s stars, is best known for a rant against
debt relief that arguably gave birth to the Tea Party. On this occasion,
however, he was ranting about another of his favorite subjects, the
allegedly inflationary policies of the Federal Reserve. And his
colleague Steve Liesman had had enough. “It’s impossible for you to have
been more wrong,” Mr. Liesman declared, and he went on to detail the
wrong predictions: “The higher interest rates never came, the inability
of the U.S. to sell bonds never happened, the dollar never crashed,
Rick. There isn’t a single one that’s worked for you.”
You
could say the same thing about many people. I’ve had conversations with
investors bemused by the failure of the dollar to crash and inflation
to soar, because “all the experts” said that was going to happen. And
that is indeed what you might have imagined if your notion of expertise
was what you saw on CNBC, on The Wall Street Journal’s editorial page,
or in Forbes.
And
this has been going on for a long time — at least since early 2009. Yet
despite being consistently wrong for more than five years, these
“experts” never consider the possibility that there might be something
amiss with their economic framework, let alone that Ben Bernanke, Janet
Yellen or, for that matter, yours truly might have been right to dismiss
their warnings.
At
best, the inflation-is-coming crowd admits that it hasn’t happened yet,
but attributes the delay to unforeseeable circumstances. Thus, in
recent Congressional testimony,
Lawrence Kudlow, also of CNBC, warned
about “excess money and a devalued dollar.” However, “Miraculously,
both actual and expected inflation indicators have stayed low.” It’s not
something wrong with my model. It’s a miracle!
At
worst, inflationistas resort to conspiracy theories: Inflation is
already high, but the government is covering it up. The sources
purporting to document this cover-up
were thoroughly debunked years ago; among other things, private indicators of inflation like
the Billion Prices Index (derived from Internet prices) basically confirm the official numbers. Furthermore, inflation conspiracy theorists
have faced well-deserved ridicule even from fellow conservatives. Yet the conspiracy theory keeps resurfacing. It has, predictably,
been rolled out to defend Mr. Santelli.
All
of this is very frustrating to those reform conservatives. If you ask
what new ideas they have to offer, they often mention “market
monetarism,” which translates under current circumstances to the notion
that the Fed should be doing more, not less.One member of the group, Josh Barro — who is now at The Times — has gone so far as to call market monetarism “
the shining success of the conservative reform movement.”
But this idea has achieved no traction at all with the rest of American
conservatism, which is still obsessed with the phantom menace of
runaway inflation.
And
the roots of inflation addiction run deep. Reformers like to minimize
the influence of libertarian fantasies — fantasies that invariably
involve the notion that inflationary disaster looms unless we return to
gold — on today’s conservative leaders. But to do that, you have to
dismiss what these leaders have actually said. If, for example, people
accuse Representative Paul Ryan, chairman of the House Budget Committee,
of believing that he’s living in an Ayn Rand novel, that’s because in
2009 he said that we are “
living in an Ayn Rand novel.”
More
generally, modern American conservatism is deeply opposed to any form
of government activism, and while monetary policy is sometimes treated
as a technocratic affair, the truth is that printing dollars to fight a
slump, or even to stabilize some broader definition of the money supply,
is indeed an activist policy.
The
point, then, is that inflation addiction is telling us something about
the intellectual state of one side of our great national divide. The
right’s obsessive focus on a problem we don’t have, its refusal to
reconsider its premises despite overwhelming practical failure, tells
you that we aren’t actually having any kind of rational debate. And
that, in turn, bodes ill not just for would-be reformers, but for the
nation.
A version of this op-ed appears in print on July 18, 2014, on page A23 of the New York edition with the headline: Addicted to Inflation
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"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill,
The Gathering Storm
