The Elderly And The Political Economy Of Deflation

I’m glad to see that my former editor Robert Kuttner’s article “Debtor’s Prison” (PDF) is sparking increased attention to the political economy of monetary policy. As Mike Konczal and Paul Krugman emphasize we seem to have something a rentier problem in this country, including the fact that the financial services industry benefits from too-low inflation in the wake of a credit bust:

I don’t mean to suggest that it’s all cynical; my experience is that there are relatively few people who consciously keep a secret set of intellectual books, who preach Neanderthal goldbuggism because it’s in their interests while rereading Keynes by dead of night to figure out what’s really happening. Instead, people generally manage to believe whatever is in their interests. And maybe not even that: I suspect that there are a fair number of small business owners who faithfully believed in Glenn Becks’s warnings of hyperinflation by 2010, quite unaware that the intimidation of the Fed has savaged their own bottom lines.

So let me add to this a constituency that’s even more important than the banksters: Old people. People in general overestimate the harm of inflation and old people are insulated from problems in the labor market. And of course old people have emerged as a core conservative constituency in recent terms. Obviously grandpa’s not sitting around saying “hahaha I don’t care if my son’s crushed by mortgage debts and my grandson can’t get a job!” But as Krugman says, people generally manage to believe whatever is in their interests. And grandpa’s developed a marked tendency to believe that austerity budgeting (with the current elderly exempted!) and disinflationary monetary policy are good for him and his grandchildren alike.