Nobel laureate Paul Krugman is attacking Amity Shlaes as a paranoid "crank" for her latest column about inflation, which is pretty much what you'd expect from Professor Krugman, who, by the way works for a newspaper whose weekday single copy New York City cover price has increased to $2.50 from the 60 cents that it cost in 1999, or 417%.
The mystery is why the center-right American Enterprise Institute and its blogger James Pethokoukis is taking the same side as Professor Krugman in the fight, with a post obstreperously headlined "Why Amity Shlaes is dead wrong about inflation." Not just wrong, mind you, but "dead wrong," he writes, in a post accusing her of "sloppiness" and "obsession" and of feeding "a conspiratorial mindset unhelpful for anything other that [sic] creating customers for the numerous gold hawkers on talk radio."
I should disclose here that Miss Shlaes is a pal of mine — I worked for and with her husband from 1995 to 2008. I also am indebted to Mr. Pethokoukis, who wrote an extremely positive review in Commentary of JFK, Conservative. I'm trying to confine my commentary here to the merits of the issue, not the people involved, both of whom I respect and have high regard for.
On the merits, I think Shlaes has a far stronger case than do the Pethokoukis-Krugman team.
Let's consider Mr. Pethokoukis' argument. He writes:
The Consumer Price Index, including food and energy, has risen by an annual average of just 1.6% since 2008, including 1.5% last year. Is Washington phonying up the numbers? Well, MIT's Billion Price Project, which "uses prices collected from hundreds of online retailers around the world on a daily basis" puts US inflation at just over 2% the past year. In other words, the CPI is roughly correct, though your personal mileage will vary a bit.
Mr. Pethokoukis describes a difference between "just over 2%" and "1.5%" as "roughly correct." But another way to look at it is that the government numbers are under-reporting inflation by 25%.
Nor is Miss Shlaes an outlier in expressing concern about inflation. Here are some recent headlines from the Financial Times, a mainstream publication that isn't exactly Peter Schiff's radio show:
January 8, 2014: "U.S. inflation expectations hit eight-month high"
May 30, 2014: "US inflation rise adds to Fed confidence"
June 17, 2014: "Inflation becomes relevant again as US consumer prices climb 2.1%"
June 27, 2014: "US inflation has climbed. Now what?"
Or look to the U.S. government itself: the federal agriculture department is predicting a consumer price increase of five to six percent for eggs in 2014, and five to six percent for fresh fruit, as well. The overall forecast increase for food prices in 2014, as of June 25, 2014, was 2.5 precent to 3.5 percent.
Nor is it just talk radio "hawkers" who want to own some gold to protect against the erosion of the dollar. The president of the Federal Reserve Bank of Dallas, Richard W. Fisher, owned at least $1 million worth of gold, according to a report of his personal financial disclosure form. John Paulson's hedge fund reportedly owned $1.19 billion worth of shares in a gold exchange-traded fund. Maybe he's a paranoid crank, too?
The items Miss Shlaes cites in her column — gasoline, movie tickets, postage stamps, haircuts, college education — are things that aren't easily outsourced to China, and things that a lot of Americans will share the sense have increased in price faster than wages have.
And as the French economist Thomas Piketty, one of Professor Krugman's favorites, no less, pointed out in his book, "inflation is hard to control: once it gets started, there is no guarantee that it can be stopped at 5 percent a year."
So those who rush to dismiss concern about inflation while criticizing those who warn of it may want to exercise some caution themselves.