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The Specter of Inflation

Like Ryan Avent, I don’t really get worrying about inflation in the current circumstances. It’s like if your house was on fire and you were worrying that the fire department’s hoses were going to wreck your television. It’s not irrational to say this might happen, but it’s very strange to be focusing your attention on it.

Basically, if we get into a recovery, then there will probably be some inflation. If that’s a modest amount of inflation, that’s fine or might even be a good thing. But it’s reasonably likely that the inflation might get problematic, in which case the Fed would have to try to tighten quickly. And if that happens, there’s a fair chance that they might tighten too quickly and we’d wind up in a “double dip” recession. That really might happen (but then again it might not) but at worst we’d be more-or-less back where we started. By contrast, there are plenty of other things that might go wrong and leave us in a much worse state than we’re currently in. So inflation is pretty far down my list of worries.

That said, there are particular classes of people for whom inflation would be a very worrisome prospect. If, for example, you’re a tenured professor with no real chance of losing his job who’s also amassed a responsible quantity of savings, then inflation is a pretty bad scenario for you, personally. But that’s hardly reflective of typical conditions in the country. Thus, I think you may see inflation fears overstated among economics commentators relative to how troubling the possibility really is.

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