Political Animal


July 28, 2012 1:02 PM Inflation Paranoia Is Like Racism

By Ryan Cooper

For most of human history racially-based prejudice has been very common. It’s simple, easily understood, and based on deep psychological roots. Generalizing things based on how they look makes a lot of sense most of the time, but taken too far it can lead to monstrous results.

Inflation paranoia is like that, on a smaller scale. It’s a simple, intuitive, easily-understood sort of belief which can lead us badly astray. Witness this prediction from Peter Schiff, pointed out by Paul Krugman:

SCHIFF: You know, look, I know inflation is going to get worse in 2010. Whether it’s going to run out of control or it’s going to take until 2011 or 2012, but I know we’re going to have a major currency crisis coming soon. It’s going to dwarf the financial crisis and it’s going to send consumer prices absolutely ballistic, as well as interest rates and unemployment.

Though Schiff is a bit of a fruitcake this kind of mindset is common, especially in Germany. Inflation is viewed as a death threat to the economy, some kind of uncontrollable beast that will jump to a hundred million percent given half a chance, which must be avoided at all costs. Mass unemployment, on the other hand, is comparatively less worrisome.

In reality, central banks have inflation easily in hand. In the US it’s low, and has been so for years. If it were to spike up too high they could raise interest rates to tamp it down again, as Paul Volcker did back in the 80s. Not a serious worry, and certainly no reason to make hysterical comparisons to Zimbabwe, especially not in the teeth of a gigantic unemployment crisis.

But the continual failure of inflation to appear doesn’t dent the conviction of the hard money fanatics. Despite the fact that the Fed has more than tripled the monetary base, Schiff still says “Printed money merely creates inflation.” (That’s not how it works.) The European Central Bank remains obsessed with 2% inflation as the Eurozone crumbles around them.

I wouldn’t say that inflation paranoia is as morally wrong as racism. But it is morally wrong. It helps the most vulnerable—debtors and the marginal worker— when they least need it (during the boom), and punishes them when they’re already suffering (during the slump). As Krugman says, the Eurozone needs some inflation to give Spain and company even a prayer of recovery (to restore competitiveness). German paranoia is giving much of the Eurozone Depression-level unemployment and may well tear it apart.

The hard money fanatics are gripped by a cancer of the mind, but a look at the consequences hopefully will make that belief repellent for future generations.

Ryan Cooper is a National Correspondent at The Week, and a former web editor of the Washington Monthly. Find him on Twitter: @ryanlcooper


  • Dredd on July 28, 2012 3:33 PM:

    It is difficult to imagine anything that is not based on deep psychological roots these days. We are mental after all.

  • howard on July 28, 2012 3:44 PM:

    you know, i appreciate that in german popular culture, runaway inflation produced the nazis, but in reality, it wasn't runaway inflation (which pretty much ended in the early mid '20s) but rather economic weakness that led to the nazis.

    but old habits die hard, and the germans are as collectively paranoid about inflation as it's possible to be.

  • golack on July 28, 2012 4:47 PM:

    But people can "see" inflation.

    The cost of gasoline goes up, it's inflation!!! (don't hear much when the prices drop)

    Food prices rise--that's inflation we feel directly in the wallet/pocket book. (what's weather got to do with it anyway?)

    Why is Captcha using Greek letters?

    Notice, economists are worried about core inflation, people are concerned about what they have to pay out. If they are not getting pay raises (assuming they have jobs), then any increase in any cost is deeply felt.

    I'm not saying we don't need a little inflation (we do), and we certainly need more gov't spending, esp. on infrastructure, but I am saying it's easy to scare people and to blame any price increase on the president's policies and tag it with the inflation mantra (supply and demand be damned).

  • Neildsmith on July 28, 2012 5:07 PM:

    Oh come on now. Liberals are advocating for inflation because they can't get what we need from Congress. We've had stimulus, tax cuts, and all manner of low interest rates and quantitative easing and the economy is, according to everyone, still stuck. When will we admit that the only cure for our ailment is time?

    Captcha is mean today. I can't even read it.

  • elisabeth on July 28, 2012 5:14 PM:

    Hi Ryan, I'm a cancer patient, so I notice the use of "illness as metaphor" more keenly than might be true otherwise. Still, I hope you'll consider whether you want to connect cancer with illogic and fanaticism. It's a terrible illness, but it doesn't make those who have it terrible, and accusing the "terrible" of having cancer isn't good writing.

  • Bob M on July 28, 2012 6:05 PM:

    I sympathize, elisabeth, for just after my son was born with no left hand twenty three years ago, the department head at a meeting said in his presentation, "They didn't chop off our arm; it is more like just losing a hand". Went through me like a knife. I will be more sensitive about cancer now myself.

    As for inflation, Schiff and the hard money people are extremists bordering on paranoia, yes, but central bankers won't have any power if inflation comes back seriously. And no one knows where or when it will. I'm thinking of retirement and don't want to be inflated into poverty. So wariness is healthy, let us say. Paranoia is paranoia first and foremost. It exists first and then seeks a subject -- birth certificates, foreigners, "the Fed", inflation, etc. Republicans must really regret making a home for paranoia.

  • Doug on July 28, 2012 7:15 PM:

    Inflation has two possible causes: a too-great demand for available products/services (the post-WWII US, for example) or deliberate printing of money by a government. Of the two best-known examples, Weimar is an example of the latter, while Zimbabwe is a combination of the two.
    Considering the empirical evidence before the various bankers and economists, I have to conclude that their "fear" of inflation is nothing more than an attempt on their part to justify their NOT recognizing the basic, ACTUAL economic problems and doing something to correct them. Because that would mean they've wrong.
    An ego can be a terribel thing...

  • howard on July 28, 2012 10:10 PM:

    neildsmith, actually, a few years of inflation would help tremendously in household debt deleveraging: lenders hate inflation for the same reason borrowers like it (at least in the short run).

  • Texas Aggie on July 28, 2012 10:53 PM:

    Doug, Barbara Tuchman wrote a book about the same theme you just mentioned. It is something that has been destroying people from the Middle Ages to Viet Nam and beyond, leaders who won't change their course even when it is obviously wrong for reasons of ego.

    And I'm curious if Schiff is still prognosticating. We have people like Cheney and Cantor and Ryan who have consistently been horribly wrong, but who still are regarded as knowing something. I wonder if they are working on the old theory that sometimes a blind squirrel can find an acorn.

  • James M on July 29, 2012 1:43 AM:

    I am no economist, but fortunately was forced, kicking and screaming, to take an introductory macroeconomics course in business school. Ever since the debt crisis fiasco, it has become apparent to me that most people have a near criminal ignorance of macroeconomics.

    Most people do, however, have an intuitive grasp of microeconomics as it is the economy of the firm or a single household. Right wing politicians (Like Angela Merkel and most U.S. Republicans) artfully and shamefully exploit the average voter's familiarity with microeconomics to push all manner of short-sighted and wrong-minded macroeconomic policies. It also really burns me to hear otherwise reasonable newscasters and pundits (Like Joe Scarborough for instance: I don't agree with most of what he says but he is generally reasonable.)make comments on the economy that sound like common sense but our completely off the mark.

    As for Neildsmith on July 28, 2012 5:07 PM:

    "We've had stimulus...": Too small.

    "tax cuts...": Fine but of little immediate effect and the largest going to high income individuals who save them rather spend them on goods or services

    "...and all manner of low interest rates and quantitative easing...": Also fine but of little effect in an under-stimulated economy with already low interest rates and little demand for capital.

    "...and the economy is, according to everyone, still stuck. When will we admit that the only cure for our ailment is time?": Time? How much time: 6 weeks, 6 months, 6 years?

  • esaud on July 29, 2012 8:29 AM:

    Re: "Mass unemployment is less worrisome":

    My theory is that for the powers that be, unemployment is at a sweet spot right now. Not so high that is causes massive unrest, pitchforks and all. But high enough that employers have been able to keep earnings high be extracting every last drop of blood from workers, so called "productivity enhancement".

    Of course, no one will admit this, but it goes a long way to explaining why non-issues like deficits and inflation actually become issues.

  • Mike O'Malley on July 29, 2012 8:38 AM:

    Inflation paranoia and racism are very very closely related, and always have been. I can't resist pointing this out because I just published a book about that exact subject:

    Face Value: the Entwined history of race and money, published by the University of Chicago press.

    In the past, for example, civil war greenbacks were compared to "negro soldiers," bot inflated beyond their natural value

    I made a blog post that tries to summarize the argument and how it applies to Obama:


  • Neildsmith on July 29, 2012 10:55 AM:

    Re: James M and howard...

    Whatever we do, it will never satisfy you, me, or anyone else. It is never enough. Those in debt would love to have their home values increase - who wouldn't? Renters like me are still priced out of the market so I lose out either way.

    How long do we have to wait? I'm guessing that people who bought homes at the height of the bubble with a 30 year mortgage will be just fine in about 25 years. Wasn't that the point?

  • Anonymous on July 29, 2012 11:35 PM:

    "Not a serious worry, and certainly no reason to make hysterical comparisons to Zimbabwe, especially not in the teeth of a gigantic unemployment crisis."

    Right, because that would be racism wouldn't it?


  • paul on July 30, 2012 12:14 PM:

    Inflation is a big deal because wages and prices are sticky (which in turn is about social power relationships between buyers and sellers). If people could just take pay cuts when times are tough, and sellers reduce the prices of their goods ditto, and then raise them again when conditions get better, you wouldn't need inflation, and you wouldn't have various sectors of the economy grinding to a halt for a few months or years. But you would need situations where trust was the norm between workers and managers, between customers and vendors. So instead we do it with inflation. When we can.

  • Rabbler on July 30, 2012 4:34 PM:

    Inflation is a great way for moderates to hack away at social programs with plausible deniability.

  • lester on July 31, 2012 8:57 AM:


  • Mary on January 27, 2013 5:41 AM:

    Wrong. Cheering for inflation to help property owners lower their debt values and lift the prices of their assets is akin to racism.

    You pretend that the 35 percent of the population that rents does not even exist. They live in the same invisible place that African-Americans have long inhabited whenever this country's bourgeoisie discusses what is in the best interest of the populace.

    When will the homeowners of this country share their good fortune and government handouts with those who have less and who are being ruined on their behalf?

    Every loan modification should have come with a requirement to take in the less fortunate and provide them with shelter. Evey call for increased inflation --- to 4 or 5 percent -- should be accompanied by even louder demands for severe rent controls. When property owners receive as much help in lowering their costs as they have the last five years, renter deserve efforts to stabilize their costs.

    All who fail to recognize this are horrendous, elitist bigots.