Inflated Expectations

President Obama is courting inflation by printing a lot of money. But the other possible option—prolonged depression—is much worse.

Snark has been in for some time, but it seems that it may threatened by outright vitriol. First it was Jon Stewart ripping James Cramer to shreds on the "Daily Show." Then it was the girl-on-girl action between bottle blondes Meghan McCain and Laura Ingraham, who catalogued each other's physical and age shortcomings, and revived Leninist abusiveness about "useful idiots," thereby providing a nice example of right-wing infantilism. Now it's moved to Congress, where legislators are fuming about undeserved bonuses, drubbing Treasury Secretary Timothy "Tiny Tim" Geithner and calling upon the analysts at American International Group (AIG) to dispose of themselves the honorable way. Meanwhile, President Obama says, "I'll take responsibility" for the bonus hugger-mugger, which means that no one will. If anyone had any lingering doubts about America entering its fin-de-siècle era, these events should dispel them.

Maybe it really is time to go to Disney World-except that it's Washington, DC that's become the true fantasyland. It's a place, boys and girls, where trillions of dollars can not only be sent, or funneled, into tottering corporations and banks, but actually created out of thin air overnight. The only thing that may prevent Federal Reserve Chairman Ben Bernanke from pumping another $1.2 trillion into the economy is, presumably, the printing presses that may collapse under the strain of so much recent activity.

No sooner did Bernanke announce that he was going to further stimulate the economy, then the dollar plunged and oil and the euro soared in value. Get used to it. If the Obama administration and Bernanke keep goosing the economy, they may end up giving Weimar Germany a run for its, well, money. There's an old joke about a student going into a café to order a cup of coffee and handing over tens of thousands in reichsmarks. He orders a second cup, only to find that the bill has skyrocketed. The waiter apologetically explains that he should have ordered both cups at the same time before prices went up again. My advice: start buying now before everything goes up in price, which is, of course, itself a recipe for inflation.

The bright side is that, unlike the Weimar Republic, America isn't laboring under a Treaty of Versailles. But populist outrage is mounting against the plutocrats. And the Obama administration's policies are not meeting with much favor on the European continent, where German Chancellor Angela Merkel has made it clear that she's not buying the line that more stimulus packages are the way to buoy the economy. Merkel told the Bundestag on Thursday that "a competition to outbid each other with promises will certainly not create stability." The Germans remain as tightfisted as ever, fully conscious of the rampant inflation of the 1920s that, among other things, helped bring the Nazis to power.

Obama and Bernanke are running the danger of massive inflation in coming years. Do they have a choice? Yes. Despite the dangers, however, they may be choosing correctly. The depression scenario-ten years of no real corporate growth-is so alarming that it's better to apply a massive dose of medicine to shock the patient back to health rather than to administer an IV drip. At least that's the working theory. If it's right, then Merkel is blindly and nostalgically adhering to antediluvian economic nostrums that could throw Eastern Europe into turmoil, as it defaults on its debts to Western Europe. But Merkel, who hails from East Germany, has already seen the Soviet economic model go under, which is why she may be loath to recapitulate it in Europe. Anyway, Europe has a host of social guarantees that mean it is already the welfare state that Obama would like America to become. Absent any economic recovery, however, Obama's plans for tax hikes and healthcare are dead on arrival.

It's a pity that economics isn't like foreign policy where the right path is always easy to discern. There's no mystery about dealing with other nations, which is why warfare has basically been abolished and tensions are always defused by diplomats who meet and amiably arrive at reasonable compromises. The economy, by contrast, will remain a puzzle even after it revives. Then a fresh round of squabbling will begin over why it recovered.


Jacob Heilbrunn is a senior editor at The National Interest.