Skip navigation

Greg Mankiw, Harvard professor, and the guy who wrote the book on economics (literally), is in the New York Times yesterday, proclaiming inflation to be right around the corner.  Mankiw begins:

“AS the economy languishes, politicians and pundits are debating what to do next.”  You’re the expert Greg, what should we do next?

“as we search for answers, it is useful to keep in mind those fates that we would like to avoid”

Mankiw then goes on to describe the recent fates of four countries: France, Greece, Japan and Zimbabwe.

He starts with, and brushes over quickly, Zimbabwe, whose currency fell apart in a heap of hyperinflation in 2008.  Mankiw knows we are nothing like Zimbabwe, but it doesn’t hurt to remind the public occasionally of what happens with excess money printing.

He moves on to Japan, whose fits of recession and deflation over the past 20 years have American policy makers wary –rightfully so, in my opinion—of the same thing happening here.  This is why the Obama administration is pushing for fiscal stimulus, he says.  But then quickly warns:

“Yet this fiscal policy comes with its own risks. The more we rely on deficit spending to keep the economy afloat, the more we risk the kind of sovereign debt crisis we have witnessed in Greece over the past year. The Standard & Poor’s downgrade of United States debt over the summer is a portent of what could lie ahead.  In the long run, we have to pay our debts — or face dire consequences.”

And this sums up everything that is wrong with mainstream macroeconomics today, as well as the disgusting fear-mongering and mis-education the media—including the New York Times—engages in to confuse the public and keep them ignorant of the way economics really works.  First off, Greece is a currency user.  They have to tax or borrow their way to Euro’s, while the US is the issuer of the dollar. The notion that sovereign governments can only borrow their currency from private banks is a red herring with no basis in reality. There is no need to tax or borrow our way to dollars, as we can issue as many as we like at no cost.

I find it hard to believe this is a distinction Mankiw is not able to make, as markets around the world have been screaming it for some time now.  The same applies to Japan.  Markets know currency issuers can always pay their debts, and so they trust them and demand their currencies.  Not so for currency users like Greece.  Second, in the 350 year history of the United States, we have always “paid our debts.”  But only one time—with disastrous consequences—did we pay it off completely.  So it’s a nonsensical statement to suggest that we should pay off the national debt. If we did then the private sector would have no savings.  Mankiw likely knows this as well, but saying so doesn’t serve the interests of those who pay him to write fearmongering articles on the dangers of government spending.  These dangers have very little basis in reality.

There is a lot more that is wrong with this article, including trite statements like getting “our fiscal house in order,” and suggesting that if we don’t reform entitlement spending “in the next several decades, taxes will have to rise.”  I don’t know about you, but when we’re 25 million jobs short of full capacity, worrying about whether my tax rate is going to be 10% higher in 20 years seems chiefly the concern of fools and charlatans.

And so Mankiw goes back to teach his macroeconomics at Harvard.  It’s too bad, such prestigious and expensive schools deserve a better education than Mankiw is likely providing their students.

Leave a Reply

Your email address will not be published. Required fields are marked *


You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>