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Oh, no! Not lower prices!

Oh, no! Not lower prices!
Profile photo of Patrick Barron

From today’s Open Europe news summary:

Italian Finance Minister Pier Carlo Padoan has said in an interview that the ECB “has to be consistent and bring [eurozone] inflation close to 2%…which is very far from current levels.” Separately, Handelsblatt reports that the Deflation Risk-Indicator (DRI), an early deflation warning system for the eurozone, currently stands on 0.47 with a score of 0.5 marking the point at which risk of deflation becomes acute.
It is hard for someone like me–who lived through the terrible stagflation (high unemployment plus high inflation) years of the 1970’s–to understand that anyone could wish for higher inflation.  Inflation devastated American manufacturing by effectively taxing capital: i.e., highly capitalized industries like autos and steel could deduct only historically low capital costs from their tax bills and did not have the funds to replace them at higher prices.  The very fact that there is a “Deflation Risk-Indicator (DRI)” is itself astoundingly dangerous and indicates the total triumph of the radical Keynesians in the halls of governments and central banks.
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Patrick Barron is a consultant to the banking industry. He teaches Austrian school economics at the University of Iowa and Bank Managemant Simulation for the Graduate School of Banking, University of Wisconsin. Visit his blog. Send him mail.

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