Immaculate inflation and immaculate growth
By Scott Sumner
Here’s Paul Krugman:
Barry Ritholtz reminds us that we’ve just passed the third anniversary of the debasement-and-inflation letter — the one in which a who’s who of right-wing econopundits warned that quantitative easing would have dire consequences. As Ritholtz notes, they were utterly wrong. Also, rereading the letter now, you have to wonder what kind of economic model they had in mind. They asserted that
The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.
So they’d be inflationary without being expansionary? How was that supposed to work? There were a few actual economists in the group; do they subscribe to the doctrine of immaculate inflation?
Fair enough. But why don’t Keynesian economists, especially British Keynesian economists, see that their faith in fiscal stimulus under an inflation targeting regime is essentially equivalent to the doctrine of immaculate growth? Somehow fiscal stimulus was supposed to boost RGDP growth in a country with 3% inflation, without leading to any increase in the rate of inflation.
A vertical SRAS curve and a flat SRAS curve are two equally false hypotheses.