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Anti-Deficit Poster Boy: We Need More Inflation Anti-Deficit Poster Boy: We Need More Inflation

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Policy

Anti-Deficit Poster Boy: We Need More Inflation

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Inflation doesn't always result in Zimbabwe.(AP Photo/Tsvangirayi Mukwazhi)

Kenneth Rogoff hasn't had an easy couple of months. Back in April, his seminal and much-cited 2010 paper cowritten with Carmen Reinhart on the impact of government debt on economic growth was found to have a couple of significant errors. Since then, he's been in an increasingly personal war with the New York Times's Paul Krugman. But a new op-ed by Rogoff brushes aside Excel and the feud with some common ground: The idea that the global economy could use some inflation.

Right now, the Federal Reserve's inflation target rests at 2 percent. The Fed's quantitative easing bond-buying program has led some people to fear that dangerously high inflation could be just around the corner. The chief economist at the Bank of England issued a similar warning for the U.K. last month.

 

 

The numbers, however, paint a different inflationary picture in the U.S. According to the Personal Consumption Expenditures price index, the preferred gauge of the Federal Reserve, inflation in the U.S. is now at a three-and-a-half-year low at just 1 percent. Ken Rogoff is sounding the alarm:

Right now is the U.S.'s best chance yet for a real, sustained recovery from the financial crisis. And it would be a catastrophe if the recovery were derailed by excessive devotion to anti-inflation shibboleths, much as some central banks were excessively devoted to the gold standard during the 1920's and 1930's.

 

This isn't the first time Rogoff has come out in favor of pumping up prices, and possibly looking to move the Fed's inflation target into the 4 percent range. And he's certainly not alone. As Krugman wrote last month, there are several other high-profile economists who have also viewed increased inflation as a good idea.

In Rogoff, even after the "uncivil" attacks, Krugman's recent rallying cry of "What do we want? Four percent! When do we want it? Now!" seems to have gained a strange bedfellow.

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