Matt Yglesias points out the oddity of the fact that, even in this deflationary downturn, many conservatives are still focused on inflation as the primary economic bugaboo. It occurs to me that this is a common theme I've heard from conservatives. Economists like Martin Feldstein and Willem Buiter worried about the inflationary impact of loose monetary policy, even as the economy was getting so bad that monetary policy was losing its punch. And to many non-economist conservatives, it's inconceivable that we could have a bad economy without having high inflation.
I just don't understand this.
High inflation is bad for an economy. Hyperinflation - the "wheelbarrows full of money" phenomenon, which happens when a government pays off large debts with printed money - will wreck an economy. But so will even a few points of deflation. The optimum, most economists think, is a low positive rate of inflation - maybe 1 or 2 percent.
So why do conservatives hate inflation with a passion bordering on insane rage, even when deflation looms? Maybe conservatives are net lenders (i.e. net savers) - after all, inflation erodes the value of savings. Since rich and old people save more than poor and young people, inflation tends to redistribute money to the poor and young (though it also makes it much easier for employers to cut real wages). Inflation also makes it easier for the government to borrow and spend money; if conservatives are afraid that governent spending will inevitably be wealth redistribution, they will naturally want low inflation to act as a check on Congress.
These are the best explanations I can think of, but I'm not completely satisfied. Is there a cultural explanation as well? Did the high inflation of the Carter years turn inflation-fighting into religion? Since Carter became the Devil and Reagan became Jesus, was inflation forced to assume the role of original sin? Or is this just another case of conservatives being unable to realize that sometimes the optimum lies in the middle?
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