Paul Krugman: The Deflation Caucus

Why is there so much fear of inflation, particularly on the political right?:

The Deflation Caucus, by Paul Krugman, Commentary, NY Times: On Thursday, the European Central Bank announced a series of new steps it was taking in an effort to boost Europe’s economy. ... But its epiphany may have come too late. It’s far from clear that the measures now on the table will be strong enough to reverse the downward spiral.

And there but for the grace of Bernanke go we. Things ... are far from O.K., but we seem ... to have steered clear of the kind of trap facing Europe. Why? One answer is that the Federal Reserve started doing the right thing years ago, buying trillions of dollars’ worth of bonds in order to avoid the situation its European counterpart now faces.

You can argue ... the Fed should have done even more. But Fed officials have faced fierce attacks... Pundits, politicians and plutocrats have accused them, over and over again, of “debasing” the dollar, and warned that soaring inflation is just around the corner..., but despite being wrong year after year, hardly any of the critics have admitted being wrong, or even changed their tune. And the question I’ve been trying to answer is why. What ... makes a powerful faction in our body politic — ...the deflation caucus — demand tight money even in a depressed, low-inflation economy? ...

One answer is ... truthiness — Stephen Colbert’s justly famed term for things that aren’t true, but feel true to some people. “The Fed is printing money, printing money leads to inflation, and inflation is always a bad thing” is a triply untrue statement, but it feels true to a lot of people. ...

Another answer is class interest. Inflation helps debtors and hurts creditors, deflation does the reverse. And the wealthy are much more likely than workers and the poor to be creditors... So perceived class interest is probably also a key motivation for the deflation caucus. ...

And the important thing to understand is that the dominance of creditor interests on both sides of the Atlantic, supported by false but viscerally appealing economic doctrines, has had tragic consequences. Our economies have been dragged down by the woes of debtors, who have been forced to slash spending. To avoid a deep, prolonged slump, we needed policies to offset this drag. What we got instead was an obsession with the evils of budget deficits and paranoia over inflation — and a slump that has gone on and on.