Daniel Nasaw reports that the DNC already started circulating opposition research on Mark Sanford because it sees him as a potential threat in 2012. Among the articles they sent around was a Politco item that quoted Sanford comparing our current economic polcies to the ones that had caused hyperinflation in Zimbabwe. And for that, liberals are accusing him of either being racist or dumb. The first charge is a disgraceful smear, and the second charge reveals how much ignorance there is on the left when it comes to economics.
To start with, here’s what Sanford actually said when defending his decision to use a portion of the stimulus money to help pay down state debt against those who were urging him to spend it:
“What you’re doing is buying into the notion that if we just print some more money that we don’t have, send it to different states – we’ll create jobs… If that’s the case why isn’t Zimbabwe a rich place?”…”why isn’t Zimbabwe just an incredibly prosperous place. Cause they’re printing money they don’t have and sending it around to their different – I don’t know the towns in Zimbabwe but that same logic is being applied there with little effect.”
In response, House Majority Whip Jim Clyburn of South Carolina (an earmark addict who has long been at war with the frugal Sanford) said, “For him to compare the president of this country to Mugabe. … It’s just beyond the pale.”
Asked if he was implying Sanford’s comment had racial overtones, Clyburn replied, “I’m sure he would not say that, but how did he get to Zimbabwe? What took the man to Zimbabwe? Someone should ask him if that’s really the best comparison. … How can he compare this country’s situation to Zimbabwe?”
There’s a very clear reason why Sanford used the Zimbabwe comparison — it’s because it’s the most prominent current example in the world of hyperinflation. Do a Google search on “Zimbabwe inflation,” and you get 1,580,000 hits. Clearly, things aren’t going to get that bad in the U.S., but Sanford was just making a point that we’re using the “same logic” here.
For other liberal bloggers, even if Sanford wasn’t racist, he was being stupid. Over at Washington Monthly Steve Benen snarks, “But while I have no idea if the governor is a racist, I do know he’s dumb as a sack of hammers.” Since he can’t explain for himself why he knows this obvious truth, he leaves the heavy lifting to Matt Yglesias.
Not only is this comparison really offensive to people living in Zimbabwe and struggling with a horrible situation, far worse than the misery Sanford is trying to inflict on the population of South Carolina by refusing to extend unemployment benefits, but the ignorance on display here is really appalling. Sanford’s like a guy standing next to a burning building worrying that it might rain tomorrow. There’s no inflation right now in the United States. None whatsoever. It’s actually a big problem, because it means that our standard macroeconomic stabilization tool—federal reserve open market operations—doesn’t work. Serious inflation would be bad, of course, and Zimbabwe-style hyperinflation would be ruinous, but some increase in inflation would be helpful. It would serve as a real cut in interest rates and help to spur growth. And long before inflation reached problem levels, the Fed could increase nominal rates to head the problem off. Sanford’s just out to sea on this.
Let’s leave aside Yglesias’s moralizing and just focus on his farcical economic arguments. For starters, Yglesias notes that there isn’t inflation now. But that’s a red herring, because Sanford was talking about why he thinks the economic policies we are pursuing will trigger inflation down the road. It’s like telling somebody warning about a housing bubble in 2004, “Sit down and shut up. You’re a complete jackass. Look around you. The housing market is booming.”
As I’ve written in depth, a real fear among economists is that at some point, we will no longer be able to find buyers for the unprecedented level of debt we are issuing, which will eventually force the Federal Reserve to inflate our way out of the mess by printing money to buy up the Treasury bills that nobody wants. This isn’t a ridiculous theory. In fact, just today, Premier Wen Jiabao said he was “worried” about China’s investments in the U.S. Zhao Qingming, a Beijing-based analyst at China Construction Bank, explained that, “China is worried that the US may solve its problems with the fiscal deficit and banks by printing money, which will stoke inflation.”
Finally, Yglesias argues that at the first sign of inflation, the Fed can simply raise rates. There are several problems with that assumption. For one thing, the Fed will be under tremendous pressure to not raise interest rates at a time when the U.S. is still weak and just emerging from a severe economic crisis. Nobody wants to be remembered as the Fed chariman who forced us into a deep double dip recession. Even if the Fed were willing to raise rates, Yglesias is making the mistake of assuming that all inflations are created equal and can be treated the same way. But an inflation caused by a glut of Treasury debt is an entirely different beast from a traditional inflation caused by too many dollars chasing too few goods. When you have the traditional inflation, raising interest rates as Yglesias suggests can reduce inflation by choking off demand. However, as John H. Cochrane, a professor of finance at the University of Chicago’s Booth School of Business, explained in a recent article of mine, “Once you have a flight from U.S. government debt, there’s nothing the Fed can do about it…If people don’t want more U.S. Treasury debt, then the Fed is out of ammunition.”
Liberals always attempt to paint conservative Republicans as stupid and racist, and as Sanford’s profile rises, they evidently want to make a preemtive strike to cement that impression in people’s minds. But in the process of doing so, the’ve done nothing but reveal their own ignorance.
UPDATE: Jim Geraghty has more, exploring the Washington Post yesterday portraying hard times in South Carolina.
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