Sunday, January 4, 2009

Two Stupid Economic Propositions Likely To Be Put Forward In 2009

--assuming they're not already out there....

1) "Everyone says deflation is a problem, but the government can solve the problem by printing more money." Ask the Weimar government how well that worked. Or the Argentines. Or any one of a dozen African countries.

2) "Wait a second! Deflation is a good thing! It will be a boon for people living on fixed incomes!" Oh nelly, if this one gains ground it could mean one muthah of a policy debate. Given the increasing number of people who will be retiring and living on fixed incomes --especially government income like Social Security-- there will be a temptation to argue that deflation is a great thing. And large numbers of people will believe it. The only problem is that in a deflationary environment, government income in nominal terms should decline, while obligations remain constant. Good luck asking politicians to cut subsidies to the "we always vote, not just when our ultra-hip guy is the nominee" elderly.

--Yes, these are mutually exclusive propositions. But mark my words, they will both be put forward, and by people who actually believe in them.

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