Noahpinion: Do the inflationistas really believe what they say?: For several months I've wanted to write a post titled something like "The absolute epic crushing devastation of the inflationista worldview". But I didn't get around to it, and that is a good thing, because Matt O'Brien does it much better than I ever could. And Paul Krugman, who has basically made a sport of slaying inflationistas, chimes in, differentiating between several levels of inflationista derp. The Inflationista Hall of Shame includes New Classical economists, Austrians, conservative politicians, some Wall Street macro types, faceless European institutions, and Niall Ferguson.
Of course it isn't just people in the popular press warning about "the bond bubble", inflation, and "all this money printing". Every Wall Street guy I hang out with in New York seems to think the same thing: "We had the Tech Bubble...we had the Housing Bubble...and I tell you what," confided a stockbroker friend to me over dinner two weeks ago, "I think right now we're in the Central Bank Bubble." To which I of course replied, "If everyone thinks it's a bubble, why doesn't it pop?"
But anyway, the question is no longer whether the inflationistas have a good point. They do not. At some point in the infinite future there will almost certainly be a period of inflation, but any theories or worldviews that kept confidently predicting inflation between 2008-2013 have now been falsified by events.
So the question is: Why do people continue to profess those same inflationista views?
I think the answer is probably different for different groups….
For New Classical economists like Steve Williamson, it's probably just a case of investment in, and commitment to, their own theoretical paradigm. Inflation happened in the 70s, and New Classical theory won lots of plaudits because it seemed to explain what was going on…. To admit that the theory only "explained" the 70s, but not the current situation, would be to say "My career has been spent working with theories that are mostly wrong." Theoretically there should be no shame in such an admission….
For "Austrians", we have to make a distinction between Austrian economists like Bob Murphy and "Wall Street Austrians" like Peter Schiff…. The former are defending their (mostly dead) econ research paradigm. The latter, though, are probably more cynical…. Warnings about inflation plays well with the middle-aged rich conservative dudes who remember the 70s….
The hedge fund and other Wall Street guys have basically been explained by Brad DeLong. They made some "widowmaker" macro trades, and took a loss, and they're basically pissed….
As for Europeans, I'm not sure…. I freely admit that my understanding of Europeans is severely limited.
And as for conservative hucksters like Niall Ferguson and Erick Erickson, well, asking why those guys say anything they say is just a waste of time. Just do the sensible healthy thing, and ridicule them.
So to sum up… 1. Commitment to a research paradigm, 2. Emotive expressions of political and personal anger, and 3. Cynical affinity manipulation. None of these things is likely to respond to any amount of data in the short term. None of these depends on correctly predicting or understanding Extant Reality. They are, rather, artifacts of a different kind of reality than the kind that moves the planets in their orbit, lands men on the Moon, and propels cannonballs in nice parabolic arcs into the walls of Constantinople. They are artifacts of Tribal Reality, the kind of reality created by human beings repeating the same words back and forth to each other in order to confirm membership in a group. The war between Extant Reality and Tribal Reality has been raging for millennia, and it will not be resolved by a few years of low inflation.