We’re nearing the fifth anniversary of the financial crisis. Over the past five years, so many people in the United States have been arguing about inflation even though we have (probably) been in a state of deflation. And, the arguments about inflation have started from the point that all inflation is bad.
A little inflation is a good thing, and it is more or less a natural consequence of economic activity. High inflation is not good, but it is very rare. We haven’t had anything close to high inflation since the early 1980s in the U.S., and by global standards, it wasn’t all that high.
But then you get to Syria. Syria is suffering from inflation estimated at 290%, which makes them pikers compared to Zimbabwe. There’s little above-board economic activity in a war zone, and the government is printing money to pay its bills. Period.
Matthew O’Brien, at The Atlantic, has a great piece about hyperinflation. The conclusion: it’s a consequence of wars and revolutions.
Hyperinflation is destabilizing, and so is deflation. But hyperinflation is worse because it is almost always associated with a breakdown and government, and it leads to a breakdown in the social order. The act of purchasing becomes so complicated that it take up everyone’s time and energy. Everyone rushes to buy things before the price goes up, and they have to carry so much cash that transactions take a long time to process. (In Zimbabwe, toward the end of the hyperinflation, money was weighed rather than counted.)
Hyperinflation also burns out, because people catch on that the money is worthless. They switch to something else: the South African rand, in the case of Zimbabwe, or the U.S. dollar, in Argentina. A new official currency may be introduced after the situation stabilizes.
The complication is that hyperinflation is caused by desperation, and it makes people desperate. It is not a harbinger of good things, nor is it an accident that the German attempts to find stabilization and prevent another economic disaster led to genocide and war.
