

But does the big inflation scare make any sense? Basically, no — with one caveat I'll get to later. And I suspect that the scare is at least partly about politics rather than economics.

First things first. It's important to realize that there's no hint of inflationary pressures in the economy right now. Consumer prices are lower now than they were a year ago, and wage increases have stalled in the face of high unemployment. Deflation, not inflation, is the clear and present danger.


The first story is just wrong. The second could be right, but isn't.

Now, it's true that the Fed has been buying lots of debt both from the government and from the private sector, and paying for these purchases by crediting banks with extra reserves. And in ordinary times, this would be highly inflationary: Banks, flush with reserves, would increase loans, which would drive up demand, which would push up prices.


But these aren't ordinary times. Banks aren't lending out their extra reserves. They're just sitting on them — in effect, they're sending the money right back to the Fed. So the Fed isn't really printing money after all.

Much of the inflation discussion calls to mind what happened during the early years of the Great Depression when many influential people were warning about inflation even as prices plunged. As the British economist Ralph Hawtrey wrote, ﻿"It is after depression and unemployment have subsided that inflation becomes dangerous."

Is there a risk that we'll have inflation after the economy recovers? That's the claim of those who look at projections that federal debt may rise to more than 100 percent of GDP and say that America will eventually have to inflate away that debt — that is, drive up prices so that the real value of the debt is reduced.


But more modern examples are lacking. Over the past two decades, Belgium, Canada and, of course, Japan have all gone through episodes when debt exceeded 100 percent of GDP. And the United States itself emerged from World War II with debt exceeding 120 percent of GDP. In none of these cases did governments resort to inflation to resolve their problems.

So is there any reason to think that inflation is coming? Some economists have argued for moderate inflation as a deliberate policy, as a way to encourage lending and reduce private debt burdens. I'm sympathetic to these arguments and made a similar case for Japan in the 1990s. But the case for inflation never made headway with Japanese policymakers then, and there's no sign it's getting traction with U.S. policymakers now.

All of this raises the question: If inflation isn't a real risk, why all the claims that it is?


But it's hard to escape the sense that the current inflation fear-mongering is partly political, coming largely from economists who had no problem with deficits caused by tax cuts but suddenly became fiscal scolds when the government started spending money to rescue the economy. Their goal seems to be to bully the administration into abandoning those rescue efforts.

Needless to say, the president should not let himself be bullied. The economy needs continuing help.


Paul Krugman is a New York Times columnist.