Wednesday, June 20, 2012

Tyler Cowen Pooh Poohs High Inflation

At marginal revolution, he quotes Alice Amsden:
Although inflation in the late 1970s was below the 1974-1975 level, it was high by post-Korean War standards. It was up from 16% in 1977 to 22% in 1978 and 1979. The average rate of inflation in Korea in the period 1962-1969 was 17.3%. In the period 1970-1979 it was 19.3%.
Cowen then writes:
You will note that South Korea, during those years and subsequently, was one of the greatest growth marvels in all of human history.

The point is not that we should aim for such high rates of inflation today, rather that if growth is strong an economy can stomach more inflation than you might think.
This is simply a bizarre statement by Cowen. High growth means high productivity. High productivity tends to mute price inflation. Thus, the real price inflation was likely higher than the horrendous numbers Cowen references, given the high "growth".

Further, what model is Cowen referencing when he suggests that high price inflation can be "stomached" when growth is strong. Can he just ignore the distortions to an economy and malinvestments caused by such inflation? Can he just buy into the growth number without questioning its significance and reliability, given the growth most assuredly reflects a lot of inflation-induced distorted growth?

Any economist who just has a rudimentary understanding of business cycle theory would never just throw these numbers out without looking into the full economic and financial history of South Korea during the period.

It's simply absurd to throw out high price inflation numbers, talk about high growth and make some kind of empirical observation that sometimes price inflation does not have to be all that bad. Amazing.


  1. Actually, this is perfect Krugman-Keynesianism. Bombing your country to near non-existence is great for the economy. It creates jobs, and when there's nothing left to your country, any productivity is a great improvement.

  2. Glazier's fallacy...... Ahhhhh it all makes sense now.

    Good thing were going to have a real stinker of a war then soon isn't it?


  3. So, as a non-economist, I ask, is he confusing price increases with true monetary inflation?
    If he is, why is he a college professor and I'm some schmuck on a boat out in the islands?
    It seems, that in a hyper-growth society like S. Korea during the '60's, competition for all items must have been fierce and driven ***prices*** sky-high. This is healthy (or at least, normal).
    Monetary debasement on the other hand is completely different and unrelated, yes?

  4. Figures he would cite South Korea during the 60's and 70's. The country was dirt poor and under the control of a dictator.

  5. I'm eonomically ignorant, so help me out. The inflation numbers Cowen cites refer to price increases, not increases in the money supply, right? So doesn't an economy that is producing more indeed "mute" the price inflation (it will be lower than otherwise)? I don't quite understand why Cowen's statements are so bizarre.

  6. Tyler Cowen understands Austrian Economics.

    To the extent he fails to mention even the topic of fiat funny-money dilution resulting in the impairment and distortion of the price, investment and capital structure, he's just trying to make sure that the NYT thinks of him as a "reasonable and thoughtful mainstream libertarian".

    Unlike me, for example.

  7. Tyler Cowen is amazingly ignorant at times -- this is the same guy who thought Krugman made a lot of good points in his debate with Ron paul for crying out loud!