Wednesday, October 10, 2012

Duh, Duy

In a short post titled Is Low Inflation Always Good?, Tim Duy quotes Scott Sumner, who observed "zero major bubbles in periods with high inflation and NGDP growth (1968-81)."

Next, Duy shows a graph of public debt relative to GDP for many nations, after public debt reached 100% of GDP.

"See the gap in the timeline?" Duy asks. For Tim Duy, that gap is explained by "The relatively high inflation late 1960's and 1970's."

His conclusion: This is "Another reason to at least think about the possibility that while high and variable inflation is not ideal, perhaps neither is very low inflation."

Inflation as policy is unsustainable, with hegemonic implications.

Assume that zero inflation is the ideal. Now, interpret Tim Duy's evidence. The only interpretation is that public debt must not be allowed to reach such a high level.

Now interpret my evidence. To prevent public debt from reaching such a high level, it is necessary to prevent private debt -- including financial debt -- from reaching such a high level.

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