Krugman on inflation, deflation and economic growth

03-28-09_1041Oligarchy and monetary policy

Krugman finds evidence of hoarding in the latest report from the International Monetary Fund. The concentration of income causes cash to lose circulation; thereby facilitating economic stagnation. Generally accepted economic principles maintain that robust economies are those with large amounts of cash in circulation. It is my understanding that cash in circulation can even be measured in terms of it’s velocity. Krugman believes that an “oligarchy”;  just .1% (0ne tenth of once percent) of the population has the most to lose with increasing inflation since the value of hoarded cash erodes with it. Rising inflation is also a stimulus for spending since today’s dollar will buy less tomorrow. Other economists such as Dean Baker and Mark Weisbrot at the Center for Economic Policy Research (cepr.net) are unequivocal on this topic and Weisbrot has observed that rapidly growing economies such as Brazil experience inflation at high single digits without ill effects. Krugman rightly asserts a social injustice element as he observes that monetary policy that places low inflation uppermost causes persistent high unemployment. He counterpoises the interests of the rich against the interests of millions of unemployed and finds that the needs of the masses trump the desires of a tiny few. Politically, however, advocating higher inflation can be a difficult sell in middle America. Workers, especially retired workers on fixed income are easily alarmed at the suggestion of eroding purchasing power and historically are not altruistic enough to endure it for the sake of the jobless.