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Political Editors / May 24, 2021

In Brief: Biden and the Magic Money Nightmare

It’s unfashionable to worry about inflation. It’s also right.

The Spectator’s editorial board has a warning about rampant inflation and the federal policies driving it.

“We have nothing to fear but fear itself,” said Franklin D. Roosevelt famously, at his first inauguration in the depths of the Great Depression in 1933. What he didn’t allow for was the danger of overconfidence. Yes, a country can talk its way into recession, but it can also print and spend its way into an inflationary nightmare. That is the worrying prospect now facing America as Joe Biden, a president often compared to FDR, tries to tempt the country into a post-Covid spending spree courtesy of magic money.

It has become deeply unfashionable to worry about inflation. According to proponents of modern monetary theory, what happened in Weimar Germany and more recently in Mugabe’s Zimbabwe somehow is not relevant to developed economies. Governments can print their way out of economic crises without worrying about debt or inflation. Why, look what happened after the 2008-09 crisis when governments first started quantitative easing, they say: we had no inflation problem after that, however the Cassandras cried. Biden’s various multitrillion plans, including that $1,400 of helicopter money to every American who earns up to $75,000 a year, are not risky bets but wise and equitable policies which will return the US to growth and a fairer economy.

History, again, shows that we do have reason to worry. The editors explain:

You can’t keep printing money and expect inflation to stay low. The argument that we didn’t have inflation as a result of post-2008 quantitative easing simply isn’t true; it is just that it afflicted asset prices rather than consumer prices, and warped the economy in ways that were slightly harder to see.

Inflation isn’t going to stay contained within asset bubbles — not with Biden dropping so many dollars into every backyard and dolloping them all across the system. The result will be more buying power, without any extra capacity in the economy. Indeed, all that extra buying power will soon be flooding into consumer markets with a finite amount of stuff to buy.

Part of our being able to avoid troublesome levels of inflation before is, they argue, “the happy product of China’s opening up to the world.” Now that China is ramping up again, that’s going to change. Finally:

For now Biden can keep promising more spending while vaguely summoning the specter of taxes for the rich. The feast of free money is bound to go on until the laws of economic gravity assert themselves once more, a fate almost prophetically described in Kipling’s 1919 poem, “The Gods of the Copybook Headings,” a warning from the first great era of free money. Kipling foresaw an attempt to establish a brave new world “when all men are paid for existing and no man must pay for his sins.” Needless to say, his poem didn’t end well, but in “terror and slaughter.” Given what happened after the Weimar inflation, this proved more accurate than any economist’s prediction.

Read the whole thing here.

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