THE BLOG
07/25/2013 07:59 pm ET | Updated Sep 24, 2013

Overheated

July has been hot. The economy has not.

Contrary to the predictions of austerians worldwide, Paul Ryan, everyone else in the Republican Party, the right-wing blogosphere, and Germany on the whole, inflation these days is thin to nonexistent and in no danger of rearing its ugly head anytime soon. The data are unimpeachable. Apart from some commodity spikes, largely a function of the volatile energy sector, basic inflation remains at a standstill across the globe.

The current U.S. rate of inflation is 1.8 percent. Last year it was 0.1-percent lower. In Europe the rate as of this June was 1.6 percent. As of this past May, the latest period for which there were data, the rate was actually negative in Japan, and has been for the entire year. Even China, where GDP is expected to grow by 7 to 8 percent, only had an inflation rate of 2.7 percent as of June. Everywhere else, the inflation story is the same. Here are some of the global data:
  • Canada: 1.2 percent
  • Mexico: 4.1 percent
  • Brazil: 6.7 percent
  • Chile: 1.9 percent
  • Israel: 2.0 percent
  • Saudi Arabia: 3.5 percent
  • India: 4.9 percent
  • Russia: 6.9 percent
  • South Africa: 5.5 percent
  • Australia: 2.4 percent
  • New Zealand: 0.7 percent
  • Indonesia: 5.9 percent

These are historically low rates, all of which can be confirmed here.

So why all the Sturm und Drang from the right wing?

Some say it's the combined effect of ignorance and arrogance. This appears to be the view of New York Times columnist Paul Krugman, who, for the last few years, has regularly berated the academics who refused to acknowledge the errors of their unmet inflation predictions and the politicians who quoted them. It's not the ignorance that bothers Krugman, who is quick to note that everyone, himself included, has made economic predictions that turned out to be wrong. Rather, it's the arrogance of those who refuse to admit their errors, those who behave as if, any day now, they will turn out to be right... when for years they have not.

Krugman is clearly onto something when it comes to the academics. My experience with professors across the board is that, in a world like theirs where ideas are the coin of the realm, being right really matters, at least to them. The consequence is that they become loath to admit when they are wrong. The problem with this view, however, especially in the case of the current inflationless world we now inhabit, is that the data is so overwhelmingly clear, and so obviously incriminating, that arrogance alone cannot explain continued adherence.

Something else is going on. Here's my take on what that is.

We have turned economics into a morality play. Most of, if not all, the austerians share a visceral contempt for government deficits. They do not just think deficits are bad as a matter of policy; they think deficits are bad, period. In their world, "thou shalt not spend money you don't have" is the Eleventh Commandment. Governments are like families, so the morality play goes. Neither can go into hock forever. And debt is like sin. When you commit it, there are consequences. Adam and Eve had to leave the garden, and we deficit spenders will have to suffer the ills of inflation... even if there is none.

Anyone with a cursory knowledge of economic history rejects this narrative -- along with its false analogies -- out of hand. Ben Bernanke, for example, has spent his life studying the Great Depression of the '30s and understands that in the world as it now exists, where interest rates are at or near zero and monetary policy is running out of stimulative tools, deficits are largely irrelevant and deflation, not inflation, is the real risk. Governments should borrow and spend and not worry about price hikes that will not occur until all the available capacity has been utilized.

For this, however, Bernanke is now being vilified as an apostate by conservatives and the GOP, who forgot that he was appointed by the most conservative president we have had in the last 70 years and is himself a Republican.

Oh, well.

Hell hath no fury like a scorned austerian.