Inflationism is the ideology of increasing the money supply to spur economic activity and “growth.” In the 19th century, economists were generally against it, though certain “innovators” (cranks) thought that increasing the supply of money would “increase aggregate demand” with no bad repercussions. “Cross of gold” kind of nonsense; “free silver” idiocy.
In the 20th century, alas, inflationism went mainstream.
Today, a few respectable economists — high-profilers like the New York Times’s Paul Krugman and U.C. Berkeley’s Brad DeLong, for example — embrace inflationism. Occasionally their arguments sound sophisticated, but all are just warmed-over rehashes of very old errors.
It’s the economic equivalent of the “perpetual motion machine”: the eternal quest to get something for nothing, progress on the cheap. It inevitably fails — but only after fooling people by “working” for a while.
Reason’s Tim Cavanaugh, discussing declining housing prices, notes that “it’s becoming harder for the Fed, HUD, the Treasury Department and the National Association of Realtors to pretend the 25-year real estate inflation was anything but a $15 trillion rip-off.” He welcomes the deflation of housing prices. The idea that one’s house should increase in value by always increasing in price — that’s really just a recipe for social disaster. It endured as long as it did only “through government subsidized debt.”
Thank Congress; thank their Fannie and their Freddie; thank the inflationist Fed.
“Creating” money and loosening credit tends to nudge up prices … but not all prices equally. It signals people to over-invest in certain sectors, often real estate. This creates a sector boom … that then must “bust.”
The alternative? The honesty of sound money.
This is Common Sense. I’m Paul Jacob.