Dispelling some economics ‘zombie lies’

Posted by AzBlueMeanie:

Gaius Publius at Americablog.com has a post on two of the "zombie lies" told by the right about the economy and echoed by the economics-ignorant media. Two charts dispel myths about inflation:

There are two economic themes, bells that are being constantly rung, to frighten people who read little real news for themselves — most people, in other words.

One is that the Fed is "printing money" — Krugman calls that a meaningless concept as phrased, given the modern definition of "money", but the phrase has visceral grab. QE2 (the second phase of Fed "quantitative easing") is the current candidate.

The other is "hyper-inflation" — like what happened in pre-Nazi Germany under the Weimar republic. That postage stamp on the left, for example, is overprinted from 10 marks to 30,000 marks.

The propagation of these themes is nothing but a terror campaign, since neither makes sense in a world ruled by logic, yet both make sense in the world of easily understood bogeymen and creatures under the bed.

And you see them everywhere — in off-hand comments by news anchors, on CNBC reports, in investment newsletters, and in 20-page solicitations for those newsletters, which are much more broadly mailed than the newsletters themselves. You hear it from your friends, who got it from the media ether.

If you read about money (as opposed to being knowledgeable about it), you've encountered these themes several times a day for more than a year.

So are they true? Paul Krugman has been especially helpful lately, and offers these simple pictures to tell a simple story.

1. Is the current increase in monetary base ("Fed printing money") connected to inflation? No.

The blue line is the monetary base or M0, the narrowest definition of money. The red line is M2, the broader definition most "real" economists use to forecast inflation. (Here, "real" means "non-propagandistic".) The green line is consumer prices, the flat-lined patient lying on the table (yes, I left out an adjective).

2. Is the increase in commodity prices (the latest "here comes hyper-inflated Santa", this season's creature under the bed) connected to inflation? Not in the least.

The bouncy blue line is commodity prices. The flat red line is consumer prices, our patient still on the table. Krugman's explanation for the current rise in commodity prices is here. (Short answer: Too many soon-to-be middle-class Asians spending the money you don't have in your paycheck, thanks to Our Betters, who love us because we give them things.)

Krugman calls these "zombie lies." But they don't tell themselves. We're inundated with government journalists, pouring this poison in our ears; and the newsletter writers, many with real-world currency cred, have turned into hacks, just common hacks, on this subject.

It's sad to see how many in the public world are keeping these zombies upright. On the other hand, we owe them lunch for calling themselves out so plainly.