Perhaps Paul Ryan is a gigantic fraud, or perhaps it is everyone who claims to see wisdom in him; perhaps – we should admit a range of possibilities, as our political and pundit class contains many and various mountebanks – both. But if ever there were an undeserved reputation for economic seriousness, it is Ryan’s. Consider the Congressman’s views on the dollar, to which Paul Krugman has recently called attention. Ryan observes that “There is nothing more insidious that a country can do to its citizens than debase its currency.”
Let us pause first, if only briefly, to consider Ryan’s absolutism on this point: Nothing more insidious? Really? Not, perhaps, eroding civil liberties until the President can, at will, assassinate an American citizen?
But no: let’s not permit what might perhaps have been forgivable hyperbole to deter us from investigating the point at issue. Perhaps Ryan meant there is nothing more insidious in the field of economics. Perhaps he meant there is nothing more insidious in the field of monetary policy. Perhaps he meant there is nothing more insidious in the very small and precisely demarcated area of permitting the value of money to shift.
Even at that charitably narrow interpretation of his remark, he would of course have been wrong. Even in the realm of changing the value of money, more insidious than debasing the currency is permitting it to appreciate – which is to say, worse than inflation is deflation.
Below is a table from Warren and Pearson’s 1933 Prices (page 300, if you desire to follow along in your hymnals).
The table is, of course, dated and perhaps to an extent arguable, but Warren and Pearson have here diligently tabulated the costs and benefits of both inflation and deflation and found that deflation is worse. It is perhaps worth mentioning that neither author was particularly left or even centrist; as Pearson said of Warren, he “was a conservative right-hand-side-of-the-roader, who never even temporarily wavered toward the middle, let alone to the left” – and the same was true of Pearson; indeed, Pearson was prone to fairly Ultraist rhetoric. Nevertheless, after careful study of Prices this is the conclusion the two deeply conservative economists reached. And it is not an especially controversial view.
How could Ryan insist then that nothing – nothing – is more insidious than inflation? The clue may lie in another remark he made on the same occasion: “Our currency should provide a reliable store of value.”
True, but only part of the story. The stock definition of money is that it is a store of value and a medium of exchange. Fixating on the former spoils money for the latter. And it’s money’s use for what it can buy that permits it to give us joy.
Why would Ryan worry so exclusively about money’s role as a store of value, and fear inflation so greatly? Here, we can turn to a more centrist, if not left, economist in John Maynard Keynes, from the 1923 Tract on Monetary Reform.
Each process, inflation and deflation alike, has inflicted great injuries. Each has an effect in altering the distribution of wealth between different classes, inflation in this respect being the worse [i.e., more consequential] of the two. Each has also an effect in overstimulating or retarding the production of wealth, though here deflation is the more injurious.
On balance, Keynes thought deflation was worse: “it is worse in an impoverished world to provoke unemployment than to disappoint the rentier.” Unless, of course, you’re Paul Ryan, in which case nothing is worse than disappointing the rentiers. Indeed, the whole Ryan schtick, involving brows furrowed over deficits and inflation, exists to ensure that the class of people eyeing their investment returns are not only not disappointed, but further and more richly sated. Changing the distribution of wealth would be far worse than inhibiting its production, and Ryan, in his certainty that nothing is worse than inflation, would rather the latter than the former.