Krugman and Bernanke Battle Over Inflation

It seems like everyone is at battle with the Nobel prize-winning economist Paul Krugman these days. Last year, Krugman and economist Steve Roach got into a tiff and the drama escalated so much that Krugman even threatened to use a bat on him, according to Bloomberg. And just yesterday we debuted a video pitting Krugman's against Ron Paul...

Again today, Paul Krugman has solidified his postion in the media spotlight. Yesterday, it was Mr. Ben Bernanke whom took his shot at Krugman in regards to Krugman's idea of how to slash the unemployment rate.

Krugman recently proposed that the Fed raise the current 2 percent inflation target in order to combat America's unemployment crisis. It sounds like Krugman doesn't think the Fed is printing money fast enough while most other economists warn of the dangers associated with the Fed's overprinting hysteria.

As the Reserve Chairman, Mr. Bernanke publicly commented on how ridiculous it would be to increase the inflation rate at a time like this, calling it a “reckless” decision.

In a counterattack, Krugman suggested Bernanke follow his own advice...

Back in the year 2000, Bernanke advised the Bank of Japan to boost inflation in order to increase the employment rate and get the economy out of a deep hole.

After being received with a bit of criticsim for the accusation, Bernanke was sure to inform the media that there is no incongruency between Bernanke's past policies and those in which he presently endorses. The reason Bernanke said Japan should increase inflation back in 2000 was because they were in a period of deflation; which changes the situation entirely.

Therefore, Bernanke argues that his views have remained “completely consistent” regarding monetary policy from then until now.

Bernanke made a statement to reporters, highlighting why the Federal Reserve stands strong in their efforts to keep inflation “low and stable”:

“We, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation, which has proved extremely valuable in that we’ve been able to take strong accommodative actions in the last four, five years,” Bernanke told reporters. “To risk that asset for what I think would be quite tentative and perhaps doubtful gains on the real side would be, I think, an unwise thing to do.”

The Standard & Poor’s 500 Index rose 0.1 percent to 1,391.92 as of 10:16 a.m. in New York. Yields on benchmark 10- year Treasury notes slumped four basis points to 1.95 percent.

Krugman followed up with a blog on the New York Times' opinion page referring to Bernanke's response as “disappointing stuff.”

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