When I was out at Purdue at my final residency last week, my professor, an unapologetic Keynesian and MIT classmate of Punxsutawney Paul, argued that inflation was nature's way of getting out of debt because of old reliable forces…

He based it on the notion that we "Still haven't paid for WW2". We grew our way out and "inflated our way out."

And while that may be well and good, given that we've had massive game changers to our economy — roads, internet boom, faster transport of goods and information, facilitation of trade on a massive scale –what exactly will be the driving innovation that will get us out or this situation to help us grow.

Growth and inflation seem like natural partners to our economic professors. But growth is sitting on the sidelines. We are still using the same plane technology as the 1950s, the same highway strategy as the 1950s, the same internet moving at the same speed of light. How can we move goods faster with more expensive sources of energy, and not be able to move cash or information faster than we already are. So, how do we grow, expand trade, and do so economically?

And then at the same time, I'm hearing that Bernanke's experiments in economic alchemy aren't stopping deflation and the Lost Decade under the past two administrations will stretch on til 2023. Now I'm just downright confused…

Will good rum be more expensive in 2014 or not. I have to put money aside. I just hope there aren't carbon taxes added to the VAT on said rum.

Stefan Jovanovich writes: 

Great phrase - Punxsutawney Paul.

Those of us who prefer currency debasement as the description of what how the U.S. fixed - temporarily - the liability side of the balance sheet, agree with Garrett's professor - we "still haven't paid for WW2". We never will. The Keynesian notion that the organized breaking of windows in Dresden and Tokyo somehow "boosted" the wealth of the United States of America remains the great Big Lie of our nation's history. Our relative wealth increased dramatically and allowed the U.S. public debt to become what it was for the next 5 decades and still is - to a lesser extent even now - the primary obligation against which the world measures debt and foreign exchange instruments. Those seignorage profits were and - at least for now -still enormous; but it is, as Garrett notes, questionable whether that alchemy now offsets the fact that, measured in money savings, the "average" American is now as broke as he/she was in 1938.

If the rum is really good, it will most certainly have greater relative value in the future than it does now - for the simply reason that, in a world of debasement, good "old" things become that much more scarce. It seems just as likely that energy will be less expensive in the future because efficiencies in the use of generated electricity and transportation and production fuels will outpace growth in demand.

The "driving" innovation will be the one Google is working on; the application of machine intelligence to the steering, accelerating and braking of automobiles and trucks. What warehouses now have as the default setting - forklifts and other moving vehicles guided by sensors - will someday soon happen on roadways - but only after the D.O.T. and public ownership of the roadways monopoly finally crumbles under the weight of its collective stupidity.


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