Meltzer v. Krugman on deflation, round two.
An excerpt:
How many more times must Paul Krugman tell us that we have to worry about deflation? (See an earlier exchange on this topic here.) Most others who shared his concern in December or January have learned that they were wrong. Some recognized the error as a failure to recognize that falling oil and food prices reduce the price level, not its sustained rate of change. Deflation and inflation refer to rates of change, not levels. Others recognize that oil prices have increased, so even a decline in the price level now seems unlikely.
It’s a pity that Krugman gives his readers a potted history of economic policy. Postwar inflation was a principal means the government used to reduce the wartime debt. And inflation was the way we reduced the debt again in the 1970s. I’m not sure which history he reads, but it does not get the facts right.
Krugman’s overriding concern is the current mess. More astute observers think that concern for present problems should not forsake future problems that arise because they are neglected. That single-minded focus on the unemployment rate brought the Great Inflation of the 1970s….
Fight! Fight!