Mon, 12 May 2008
There’s been a few major issues lately where inflation and central banks have been key elements: Zimbabwe’s collapse under Mugabe, the recent Australian Federal election, and the US sub-prime mortgage crisis. What I find fascinating is that it all seems to be treated as an absolute black art by almost everyone, in spite of economics supposedly being reasonably well understood these days.
It’s particularly weird, because at a fundamental level, inflation is absolutely trivial to deal with: if you don’t want inflation, stop printing more money; if you want to print more money, you’ll get inflation. Tin-pot dictators like Mugabe can’t manage that fairly simple recipe because it’s the only way they can ensure they have more money (and thus control) than their subjects – since they don’t create anything of value themselves no one gives them money by choce, and since they run their country into the ground, tax revenues don’t work well enough, leaving printing more money as the only way to replace whatever they’ve just wasted.