All posts tagged Hyperinflation

Deflation – not hyperinflation – brought Hitler to power

This Matt O’Brien in The Atlantic:

“Everybody knows you can draw a straight line from its hyperinflation to Hitler, but, in this case, what everybody knows is wrong. The Nazis didn’t take power when prices were doubling every 4 days in 1923– they tried, and failed — but rather when prices were falling in 1933.”

Matt is of course right – unfortunately few European policy makers seem to have studied any economic and political history. Furthermore, few advocates of free market Capitalism today realise that the biggest threat to the capitalist system is not overly easy monetary policy. The biggest threat to free market Capitalism is overly tight monetary policy as it brings reactionary and populist forces – whether red or brown – to power.

Update: This is from the German magazine Spiegel:

“From 1922-1923, hyperinflation plagued Germany and helped fuel the eventual rise of Adolf Hitler.”

…I guess somebody in the German media needs a lesson in German history.

HT Petar Sisko.

PS Scott Sumner has a new blog post on how wrong many free market proponents are about monetary issues.

PPS take a look at this news story from the deflationary euro zone.

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6 Comments
by Lars Christensen on November 17, 2013  •  Permalink
Posted in Deflation, Germany, Hyperinflation, Matthew O'Brien, Petar Sisko, Scott Sumner
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Posted by Lars Christensen on November 17, 2013

https://marketmonetarist.com/2013/11/17/deflation-not-hyperinflation-brought-hitler-to-power/

Venezuela’s monetary craziness

Yesterday I wrote a post about how we are inching closer and closer to outright deflation in Europe. However, for other countries the risk of deflation is not the issue. In Argentina and Venezuela outright hyperinflation is becoming more and more likely.

The situation seems particularly insane in Venezuela. This is from Bloomberg (a week ago):

Venezuela’s annual inflation rate rose more than expected to 54.3 percent last month, the fastest pace in as many as 16 years, as shoppers scrambled for scarce goods ahead of Christmas festivities.

October inflation compares with an annualized 49.4 percent the month earlier and the 52 percent median estimate of three analysts surveyed by Bloomberg. Prices rose 5.1 percent in the month, the central bank said today.

Currency controls have crimped imports in a country that gets about 70 percent of its goods from abroad, pushing up the cost of products that make it into the country. Price increases in the capital, Caracas, are running at the fastest pace since 1997, two years before former President Hugo Chavez came to power.

Anybody with the faintest idea about economics knows that you can only get this kind of inflation if the printing is running too fast. So there is only one way to combat inflation – slow the printing press. It is very simple.

But of course this is not the kind of answer Venezuela’s socialist president Nicolas Maduro would like to hear. Instead he has ordered the army to enforce massive cuts in retail prices. Just see this story:

After taking control of several appliance stores last week, Maduro vowed late Sunday to step up inspections of businesses selling shoes, clothes, automobiles and other goods to make sure they aren’t gouging consumers. He also said he’ll impose limits on profits as the government tries to curb inflation running at 54 per cent.

In eastern Caracas, a five-block line of bargain hunters, some waiting since Saturday, snaked from a JVG electronics store hoping for the chance to buy televisions, washing machines and refrigerators at deep discounts.

“We’ve been waiting for this for a long time,” said Sixto Mesa, a government supporter.

Maduro is gambling that by expanding price controls he can regain support he has lost since winning election in April, as inflation soared to a two-decade high and the U.S. dollar shot up on the black market to nine times its official value.

…

“We can’t just close the businesses; the owners have to go to jail,” Maduro said in an impassioned speech Sunday night in which he cited Jewish, Muslim and Christian texts to harangue businessmen he accuses of usury. “We can’t allow our hard currency to be used to rob people through the sale of these goods.”

At the same time Maduro is attacking merchants he calls the “parasitic bourgeoisie,” he has vowed zero tolerance for looting. On Monday, police fired shots in the air to prevent crowds from raiding a toy store in the Caracas suburb of Los Teques, with many businesses in the town shuttering early for fear of violence.

Maduro also took his offensive to the Internet, blocking access to seven websites that track the value of the country’s bolivar currency on the black market. The president over the weekend accused the websites of spreading panic and conspiring against his government.

What can you say? Insane…

“The Army just helped me ‘buy’ this nice flat-screen TV…”

Venezuela Frenzied Shopping

1 Comment
by Lars Christensen on November 14, 2013  •  Permalink
Posted in Uncategorized
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Posted by Lars Christensen on November 14, 2013

https://marketmonetarist.com/2013/11/14/venezuelas-monetary-craziness/

More silliness from the tin foil hat Austrians

I love reading the normally good blog posts on freebanking.org written by clever economists such as George Selgin and Kurt Schuler. However, the Facebook page of freebanking.org very often fails to live up to the same good standards as the blog. In fact most updates are what I consider to be internet-Austrian nonsense.

Here is the latest example:

“If the dollar were suddenly to lose reserve status, the United States of America would face catastrophic inflation.”

The freebanking facebook page is quoting an article by Lawrence J. Fedewa. I have never heard about him before, but his article is a pretty good example of the kind of “the-world-is-coming-to-an-end” nonsense, which is floating around in cyberspace mostly written by tin foil hat Austrians.

But let me address the quote above.

First of all there are no signs that the dollar in any way is loosing its reserve status. In fact the dollar is more popular than ever. Hence, since the onset of the crisis in 2008 we have seen a massive increase in dollar demand – in fact that was what caused the crisis.

Or just ask yourself what currency is about to replace the dollar as the reserve currency of the world? The euro? I think not? Or the yuan? Think again you silly people.

I am presently vacationing in Thailand and I am pretty sure that if I wanted to pay any local street vendor here with dollars they would be very happy to accept it. But would they accept euros? Probably – there is a lot of German tourists in the area where we are vacationing so the locals are probably familiar with the euro.

But what if I tried to pay with yuan? I doubt the street vendors would accept that. So no the verdict is pretty clear from the Thai street vendors – the US greenback is what they prefer to any other currency (I nonetheless pays in Thai baht).

But lets get back to some more silliness. This is again from Fedewa’s article:

If the dollar were suddenly to lose reserve status, the United States of America would face catastrophic inflation. All the dollars that the Federal Reserve has been creating, at about $85 billion each month, would begin to be dumped right on our heads, and the dollar would become virtually worthless. A loaf of bread could cost $50, a basket of groceries could cost $500. Hyperinflation has happened to many nations, including post WWI Germany, France and Russia, and modern day Greece and Spain.

Note here this is the trick used by the internet-Austrians – “It might be that we do not have hyperinflation yet but it will comes once dollar demand collapses”. Fine, first of all there is unfortunately no real sign that dollar demand is declining and money-velocity in the US is still quite elevated.

Second, if dollar demand where to start declining it would be good news as it would mean that the world would becoming “normal” again. That the excessive demand for dollars driven by deflation fears were easing. That obviously would increase inflationary pressures. And that should be welcomed – after all there is still significant slack in the US economy and inflation continues to be way below the Federal Reserve’s semi-official inflation inflation of 2% and the reason the fed has had to massively expand its balance sheet is exactly the massive demand for dollars.

But ok lets say that out of the blue everybody suddenly did not want to hold US dollars – I still fail to see why that would be the case, but lets for the sake of the argument assume that to be the case. A collapse in dollar demand would of course effectively be massive US monetary easing. The impact of this would likely be a sharp increase in both real and nominal GDP – and inflation.

Would the Fed be helpless in this situation? No not at all. The Fed of course could just tighten monetary policy. It could of course easily shift quantitative easing into reverse by for example announcing that if would cut the money base by 100 or 200bn dollars per months until inflation expectations returned to (just) below 2% and given the fact that the Fed’s balance sheet has never been bigger it could cut the money base a lot. There is not limits to how easing or tightening a central bank can do. Only paleo Keynesians and tin foil Austrians fail to understand this.

It is too bad that there is so much nonsense about monetary policy floating around in cyberspace, but it is unfortunately only getting worse and worse. I don’t know why this is and these views have probably always been around, but I for one is sick and tired of listening to all is nonsense!

And finally, the US government is not about to default. The crackpots on the left are wrong when the claim that the US government would have to default had the debt ceiling not been raised (the US government could just have cut spending) and the crackpots on the right are wrong when they claim that the US government debt is out of control (the budget deficit is declining strongly and public debt levels have stabilized).

But of course that financial markets know that all this is just political hype in Washington. Just look at the S&P500 – it has gone up all though this show of US political dysfunctionality. Why? Because monetary policy dominates fiscal policy. It is the Sumner Critique stupid!

And now back to my vacation…

PS I have no clue whether Fedewa considers himself to be an Austrian. I use the term tin foil hat Austrian to describe a tendency or type of argument used by so many commentators rather than by people who actually read von Mises and Hayek. By the way I bet most of the people in cyberspace making what they believe to be “Austrian” arguments actually found these arguments on Youtube rather than by reading “Human Action” and other must-read Austrian classics. What I don’t understand is why Austrian scholars who actually did study von Mises and Hayek are not coming out much more aggressively and tell people like Peter Schiff that his arguments are nonsense. I would love to see a debate between for example Steve Horwitz and Peter Schiff.

PPS I just came to think of the Austrian version of Godwin’s law. Godwin’s law states that “As an online discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches 1.” The Austrian version of this should read: “As an online discussion about monetary policy grows longer, the probability that an Austrian will mention Zimbabwe or the Weimar Republic approaches 1.”

21 Comments
by Lars Christensen on October 19, 2013  •  Permalink
Posted in Austrian economics, Federal Reserve, Hyperinflation
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Posted by Lars Christensen on October 19, 2013

https://marketmonetarist.com/2013/10/19/more-silliness-from-the-tin-foil-hat-austrians/

The Sudanese Pound – another Troubled Currency

A couple of days ago I wrote about Steve Hanke’s new Troubled Currencies project. The project presently covers Argentina, Iran, North Korea, Syria andVenezuela. However, I think Steve now has to expand the list with the Sudanese pound.

This is from Reuters yesterday:

Sudan’s currency has fallen to a record low against the dollar on the black market since South Sudan started reducing cross-border oil flows in a row over alleged support for rebels, dealers said.

There is little foreign trading in the Sudanese pound but the black market rate is an important indicator of the mood of the business elite and of ordinary people left weary by years of economic crises, ethnic conflicts and wars.

The rate is also watched by foreign firms such as cellphone operators Zain and MTN and by Gulf banks who sell products in pounds and then struggle to convert profits into dollars. Gulf investors also hold pound-denominated Islamic bonds sold by the central bank.

On Wednesday, one dollar bought 7.35 pounds on the black market – which has become the business benchmark – compared to 7 last week, black market dealers said. The central bank rate is around 4.4.

The pound has more than halved in value since South Sudan became independent in July 2011, taking with it three-quarters of the united country’s oil output. Oil was the driver of the economy and source for dollars needed for imports.

Last week, South Sudan said it would close all oil wells by the end of July after Sudan notified it a month ago it would halt cross-border oil flows unless Juba gave up support for rebels. South Sudan denies the claims.

Flows had only resumed in April after an earlier 16-month oil shutdown following South Sudan’s secession.

Interesting it is not only Sudan that has a currency/inflation problem. The same has indeed been the case for South Sudan, which initially after it became independent in 2011 saw a sharp spike in inflation.

Paradoxically enough the cause of the spike in inflation in South Sudan was the same as in Sudan – an South Sudanese oil boycott of Sudan. Hence,  the cut in oil sales from South Sudan to Sudan caused a sharp drop in the South Sudanese government’s oil revenue. That led the government to effectively force the new South Sudan central bank to fund the revenue shortfall by letting the money printing press work overtime.

As far as I know it was initially considered that South Sudan should implement Steve’s favourite monetary solution for countries like Sudan and South Sudan – a currency board.

Even though I am no big fan of currency boards I would agree with Steve that it could be the right solution for countries with extremely weak institutions such as Sudan and South Sudan. Another possibility could simply be to just dollarize and completely give up having their own currencies. My favourite solution for South Sudan would be a currency board, but with a twist – the Sudan Sudanese pound should be pegged to the price of oil rather than to another currency. This of course would be a strict form of the Export Price Norm (EPN), while I think complete dollarization would be the best solution for Sudan. Needless to say both Sudan and South Sudan should get rid of all capital and currency controls.

Finally it should be noted that while inflation seems to be getting out of control in Sudan inflation in South Sudan has been coming down significantly over the past year.

PS While the monetary situation is getting worse in Sudan the situation in Egypt apparently is improving and the black market for the Egyptian pounds seem to be “vanishing” according to a blog post from Steve today.

3 Comments
by Lars Christensen on July 25, 2013  •  Permalink
Posted in Egypt, Export Price Norm, Hyperinflation, Project African Monetary Reform (PAMR), South Sudan, Steve Hanke, Sudan, The Troubled Currencies Project
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Posted by Lars Christensen on July 25, 2013

https://marketmonetarist.com/2013/07/25/the-sudanese-pound-another-troubled-currency/

Blame del Pont for the nightmarish rise in Argentine inflation

This is from MercoPress today (Saturday)):

For a third consecutive day the ‘blue’ dollar which trades in Argentina’s informal market established a new record and after having brushed 10 Pesos in earlier trading finally closed Friday at 9.84 (buying price) and 9.88 (selling price) Pesos.

This means the price of the greenback in Argentina’s informal market, as people flock to get rid of their local currency, has soared 44 cents in a week and the gap with the ‘official’ rate which ended trading on Friday at 5.20 Pesos selling price, has reached 90%.

“There are plenty of buyers, but people wanting to sell dollars are scarcer and scarcer. Nobody wants to get rid of the dollars in Argentina, not even tourists”, said Buenos Aires city financial quarter money traders.

“Despite the rain we’re literally flooded with demands for dollars and we have been forced to work on weekends. Because of inflation, people collect their salaries and rush to turn them into foreign currency”, added the money traders…

…With the latest advance, the ‘blue’ dollar in Argentina has ballooned 44.49% since the beginning of the year, while the official rate has only increased 5.5%. The rush on the dollar is reflected in the Central bank’s international reserves which lost 911 million last month and now stand at 39.535 billion, which is the lowest in six years.

The situation called for an urgent meeting at midday convened by President Cristina Fernandez and the cabinet chief Juan Manuel Abal Medina together with Economy minister Hernan Lorenzino, Deputy minister Axel Kicillof, Domestic Trade Secretary Guillermo Moreno, the president of the Central bank, Mercedes Marcó del Pont and the head of the tax revenue office Ricardo Echegaray.

The collapse of the peso should be no surprise to anybody who have studied Milton Friedman. Unfortunately Argentina’s central bank governor Mercedes Marcó del Pont hates Milton Friedman, but she loves printing money to finance public spending.

Paradoxically one can say that del Pont at the moment is providing a very good demonstration that monetary policy “works”. First, she is showing that printing a lot of money will eventually lead to inflation and second that expectations are tremendously important in the conduct of monetary policy.

As Argentines know that del Pont has no plan of stopping her “money printing mission” they also know that inflation will accelerate further in the future. That of course is the reason why the are dumping the peso to buying dollars. The consequence of course is a sharp increase in money-velocity. Therefore, Argentine prices now very likely increasing at a much faster rate the the growth of the money supply.

The Argentine government is refusing to recognize the connection between del Pont’s nightmarish monetary policy and the spike in inflation. Instead the Argentine government is fighting inflation in two other ways.

First, the government simply is cheating on the numbers. Nobody thinks that the official Argentine inflation numbers are correct. In fact in a recent highly embarrassing interview with Greek TV Argentina’s economic minister Hernan Lorenzino was completely unable to explain what the level of inflation is in Argentina. Lorenzino called the Argentine inflation statistics “complex”. Well, it might be “complex” to Lorenzino, but understanding the inflation process is extremely simple – when you print more money than is demanded then you get inflation.

Second, the government has introduced draconian price controls. But as Milton Friedman would have explained to del Pont and the Argentine government – price controls cannot curb the inflation pressures, but it is a very effective mechanism to empty the shops for goods to buy and that is of course exactly what is happening in Argentina right now. See more on the rise of price controls in Latin America in this excellent article from Steve Hanke.

I have recently argued that based on the collapse in the blackmarket peso exchange rate inflation might already have surpassed 100%. That might or might not be the case, but the escalation in the sell-off in the peso is a very clear indication of a complete collapse in average Argentine’s trust in the value of the currency. Normally when we see such a collapse of confidence in the currency inflation will spike dramatically. In fact I would argue that if Del Pont continues her misguided monetary policies for much longer then Argentina clearly risks hyperinflation. We don’t have hyperinflation at the moment, but inflation is certainly extremely high and is accelerating very fast.

The only thing to be happy about – from a distance – is that del Pont at the moment is proving to the world that there is no such thing as a liquidity trap. A central bank can always increase inflation by printing more money than is being demanded. In Argentina the demand for pesos has collapsed, while at the same time the supply of pesos is exploding.

If del Pont had bothered studying Milton Friedman she would have known that that will cause a massive rise in inflation. Unfortunately it seems like del Pont never studied monetary theory or monetary history, but she is unfortunately giving every Argentine a horrific lesson in central bank incompetence.

5 Comments
by Lars Christensen on May 4, 2013  •  Permalink
Posted in Argentina, Hyperinflation
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Posted by Lars Christensen on May 4, 2013

https://marketmonetarist.com/2013/05/04/blame-del-pont-for-the-nightmarish-rise-in-argentine-inflation/

Argentina’s inflation might already have surpassed 100%

There is no doubt that the main monetary policy problem in world over the last five years has been overly tight monetary policy – particularly in the US and the euro zone. However, there are certainly also central banks of the world that have erred on the other side.

Hence, Iran is flirting with hyperinflation and the policies of the petro-socialist regime in Venezuela has sparked runaway inflation. Furthermore, there is no doubt that inflation in Argentina is increasingly getting out of control and that is the topic for this blog post.

Officially inflation in Argentina is around 11%. However, anybody who has just a minimum of knowledge about the Argentine economy knows that the Argentine inflation numbers are as real as Mickey Mouse. Inflation in Argentina is not 11%, but much higher.

According to an alternative measure of inflation the so-called Congressional Index, which is a price index based on private surveys inflation is more likely around 24-25%.

But inflation is likely even higher than that. Surveys of inflation expectations indicate that inflation is running around 30%.

However, I think that it might be even worse than that. One thing that is strongly distorting all of these measures is the extensive price controls that have been put in place in recent years in Argentina. These controls undoubtedly have “helped” curb inflation. However, the underlying reasons for the sharp increase in inflation cannot be removed by draconian price controls. It might have postponed inflation from rising further in the short-run, but sooner or later the underlying inflationary pressures will be translated into actual inflation.

A Hankeian measure of Argentina’s near-hyperinflation

The world’s foremost expert on super high inflation and hyperinflation in my view is Steve Hanke. Steve has suggested to use black market exchange rates as a proxy for inflation when official data is none-existent or manipulated. Steve suggests using the black market exchange rate rather than the official exchange rate when capital and currency controls distort the official exchange rate (as is presently the case in Argentina).

This is Steve (his case is Zimbabwe):

The principle of purchasing power parity (PPP) should be able to come to our rescue. PPP states that the ratio of the price levels between two countries is equal to the exchange rate between their currencies. Changes in the exchange rate and the ratio of the price levels move in lock step with one another, with the linkage between the exchange rate and price level maintained by price arbitrage.

…But does PPP hold during periods of hyperinflation? If not, we cannot use changes in the Zimbabwe dollar/U.S. dollar exchange rate to estimate Zimbabwe’s inflation rate. There is a consensus among economists that, over relatively short periods of time and at relatively low inflation rates, the link between exchange rates and price levels is loose. But as inflation rates increase, the link becomes tighter.

In a study of the German hyperinflation of 1921–23, Jacob Frenkel  (1976) found that correlations between various German price indices and the German mark/U.S. dollar exchange rate were all close to one. Every 1 percent increase in the exchange rate was associated with a 1 percent increase in the price level. Frenkel’s empirical work strongly suggests that PPP holds when a country is hyperinflating. Additional evidence supporting the PPP principle during periods of very high or hyperinflation has been reported for a wide range of countries…

That PPP holds under conditions of very high inflation or hyperinflation should not be surprising. After all, under these conditions, the temporal dimension of price arbitrage is compressed and the long run effectively becomes the short run. For example, in July 2008, Zimbabwe’s inflation was 2,600 percent a month—equivalent to a 12 percent daily rate. That is per day—not per month, or per year. In these circumstances, arbitrage benefits per unit of time are relatively large and transaction costs can be overcome quickly. Accordingly, price arbitrage works to ensure that PPP holds.

Steve in his paper on Zimbabwe utilized PPP and the black market exchange rate to calculate the inflation rate in Zimbabwe. I have used the same method to make an estimate for Argentine inflation. The graph below shows the official price level and the price level implied by the black market rate for the Argentine peso against the US dollar (and the US price level).

Price Level Argentina

The graph is pretty clear – until  2007-8 the official price level more or less developed in line with the price level implied by PPP. However, ever since the price level implied by PPP has grown much faster than the official inflation rate.

This is a very a clear indication just how manipulated the official inflation data has become since 2007-8 and the graph also very clearly shows how steep an increase in prices we have seen in Argentina since early 2012.

Inflation might have surpassed 100%

There is no doubt that inflation has accelerated further in the last couple of months and this is clearly confirmed by my calculation of the PPP implied price level. Hence, over the past three months the PPP implied price level has increased by an annualized rate of 127%!

This is the reason why I would argue that it is likely that Argentine inflation already has surpassed 100% – maybe not on a year-on-year basis, but at least on a annualized basis over the last 3-6 months. This is not just high inflation, but rather an inflation rate that might very well turn into outright hyperinflation (more than 50% increase in prices per month) unless there is a dramatic change in economic policy in Argentina.

It is monetary policy failure – stop the press NOW!

There is no doubt that Argentina’s super high inflation is caused by excessive money supply growth and that is obviously also the case in Argentina where President Cristina Kirchner’s populist government has been funding excessive growth in public finances by letting the printing press running overtime.

Hence, there is only one way of stopping the runaway inflation in Argentina and that is by stopping the printing press. Unfortunately it has hard to be optimistic that inflation will be slowed anytime soon when Argentina’s central bank governor don’t believe that there is a connection between money supply growth and inflation. We live in an age of central banker ignorance.

13 Comments
by Lars Christensen on April 12, 2013  •  Permalink
Posted in Argentina, Steve Hanke
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Posted by Lars Christensen on April 12, 2013

https://marketmonetarist.com/2013/04/12/argentinas-inflation-might-already-have-surpassed-100/

Papers about money, regime uncertainty and efficient religions

I have the best wife in the world and she has been extremely understanding about my odd idea to start blogging, but there is one thing she is not too happy about and that is that I tend to leave printed copies of working papers scatted around our house. I must admit that I hate reading working papers on our iPad. I want the paper version, but I also read quite a few working papers and print out even more papers. So that creates quite a paper trail in our house…

But some of the working papers also end up in my bag. The content of my bag today might inspire some of my readers:

“Monetary Policy and Japan’s Liquidity Trap” by Lars E. O. Svensson and “Theoretical Analysis Regarding a Zero Lower Bound on Nominal Interest Rate” by Bennett T. McCallum.

These two papers I printed out when I was writting my recent post on Czech monetary policy. It is obvious that the Czech central bank is struggling with how to ease monetary policy when interest rates are close to zero. We can only hope that the Czech central bankers read papers like this – then they would be in no doubt how to get out of the deflationary trap. Frankly speaking I didn’t read the papers this week as I have read both papers a number of times before, but I still think that both papers are extremely important and I would hope central bankers around the world would study Svensson’s and McCallum’s work.

“Regime Uncertainty – Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War” – by Robert Higgs.

My regular readers will know that I believe that the key problem in both the US and the European economies is overly tight monetary policy. However, that does not change the fact that I am extremely fascinated by Robert Higgs’ concept “Regime Uncertainty”. Higgs’ idea is that uncertainty about the regulatory framework in the economy will impact investment activity and therefore reduce growth. While I think that we primarily have a demand problem in the US and Europe I also think that regime uncertainty is a highly relevant concept. Unlike for example Steve Horwitz I don’t think that regime uncertainty can explain the slow recovery in the US economy. As I see it regime uncertainty as defined by Higgs is a supply side phenomena. Therefore, we should expect a high level of regime uncertainty to lower real GDP growth AND increase inflation. That is certainly not what we have in the US or in the euro zone today. However, there are certainly countries in the world where I would say regime uncertainty play a dominant role in the present economic situation and where tight monetary policy is not the key story. My two favourite examples of this are South Africa and Hungary. I would also point to regime uncertainty as being extremely important in countries like Venezuela and Argentina – and obviously in Iran. The last three countries are also very clear examples of a supply side collapse combined with extremely easy monetary policy.

Furthermore, we should remember that tight monetary policy in itself can lead to regime uncertainty. Just think about Greece. Extremely tight monetary conditions have lead to a economic collapse that have given rise to populist and extremist political forces and the outlook for economic policy in Greece is extremely uncertain. Or remember the 1930s where tight monetary conditions led to increased protectionism and generally interventionist policies around the world – for example the horrible National Industrial Recovery Act (NIRA) in the US.

I have read Higg’s paper before, but hope to re-read it in the coming week (when I will be traveling a lot) as I plan to write something about the economic situation in Hungary from the perspective of regime uncertain. I have written a bit about that topic before.

“World Hyperinflations” by Steve Hanke and Nicholas Krus.

I have written about this paper before and I have now come around to read the paper. It is excellent and gives a very good overview of historical hyperinflations. There is a strong connection to Higgs’ concept of regime uncertainty. It is probably not a coincidence that the countries in the world where inflation is getting out of control are also countries with extreme regime uncertainty – again just think about Argentina, Venezuela and Iran.

“Morality and Monopoly: The Constitutional political economy of religious rules” by Gary Anderson and Robert Tollison.

This blog is about monetary policy issues and that is what I spend my time writing about, but I do certainly have other interests. There is no doubt that I am an economic imperialist and I do think that economics can explain most social phenomena – including religion. My recent trip to Provo, Utah inspired me to think about religion again or more specifically I got intrigued how the Church of Jesus Chris Latter day Saints (LDS) – the Mormons – has become so extremely successful. When I say successful I mean how the LDS have grown from being a couple of hundreds members back in the 1840s to having millions of practicing members today – including potentially the next US president. My hypothesis is that religion can be an extremely efficient mechanism by which to solve collective goods problems. In Anderson’s and Tollison’s paper they have a similar discussion.

If religion is an mechanism to solve collective goods problems then the most successful religions – at least those which compete in an unregulated and competitive market for religions – will be those religions that solve these collective goods problems in the most efficient way. My rather uneducated view is that the LDS has been so successful because it has been able to solve collective goods problems in a relatively efficient way. Just think about when the Mormons came to Utah in the late 1840s. At that time there was effectively no government in Utah – it was essentially an anarchic society. Government is an mechanism to solve collective goods problems, but with no government you have to solve these problems in another way. Religion provides such mechanism and I believe that this is what the LDS did when the pioneers arrived in Utah.

So if I was going to write a book about LDS from an economic perspective I think I would have to call it “LDS – the efficient religion”. But hey I am not going to do that because I don’t really know much about religion and especially not about Mormonism. Maybe it is good that we are in the midst of the Great Recession – otherwise I might write about the economics and religion or why I prefer to drive with taxi drivers who don’t wear seat belts.

—-

Update: David Friedman has kindly reminded me of Larry Iannaccone’s work on economics of religion. I am well aware of Larry’s work and he is undoubtedly the greatest authority on the economics of religion and he is president of the Association for the Study of Religion, Economics and Culture. Larry’s paper “Introduction to the Economics of Religion” is an excellent introduction to the topic.

9 Comments
by Lars Christensen on October 19, 2012  •  Permalink
Posted in CNB, Czech Republic, Greece, Hyperinflation, Inflation, Monetary policy, Nicholas Krus, Reading recommendations, Regime Uncertainty, Robert Higgs, Steve Hanke, Steven Horwitz, The Great Moderation, The Great Recession
Tagged , , , , , , , , , , , , , , , ,

Posted by Lars Christensen on October 19, 2012

https://marketmonetarist.com/2012/10/19/papers-about-money-regime-uncertainty-and-efficient-religions/

Hanke and Krus on “World Hyperinflations”

I just read an interesting piece on the escalation of inflation in Iran by Steve Hanke. Steve’s Iran piece is interesting enough, but in his article he has a reference a to his recent Cato working paper on “World Hyperinflations”. Nicholas Krus is co-author of the paper.

I haven’t read the paper yet, but the abstract certainly makes me want to read it:

“This chapter supplies, for the first time, a table that contains all 56 episodes of hyperinflation, including several which had previously gone unreported. The Hyperinflation Table is compiled in a systematic and uniform way. Most importantly, it meets the replicability test. It utilizes clean and consistent inflation metrics, indicates the start and end dates of each episode, identifies the month of peak hyperinflation, and signifies the currency that was in circulation, as well as the method used to calculate inflation rates.”

Even though some – especially some internet Austrians in US – worry about the danger of hyperinflation in the US and Europe I rather think that the risk in the euro zone and partly in the US is deflation than hyperinflation. However, there are countries in the world today where hyperinflation is a real risk. Steve of course gives the example of Iran. I would also be quite worried about inflation getting seriously out of control in Venezuela and Argentina.

So what is worse hyperinflation or (demand) deflation? Well, both are the result of serious monetary policy mistakes and both have devastating impact on the economies hit by it. Germany experienced both within a 10 year period from 1923-1933 and we know how that ended.

PS The 1923 German hyperinflation is documented in Adam Fergusson’s 1975 book “When Money Dies”.

5 Comments
by Lars Christensen on October 9, 2012  •  Permalink
Posted in Hyperinflation, Nicholas Krus, Steve Hanke
Tagged , , ,

Posted by Lars Christensen on October 9, 2012

https://marketmonetarist.com/2012/10/09/hanke-and-krus-on-world-hyperinflations/

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