Lagarde Worries About ‘Not Enough Inflation’ Again

A New Term For the Economic Lexicon

We have previously written extensively about the absurd worrying about ‘inflation being too low’ in Europe, even while millions are out of work and forced to live from their savings or meager hand-outs from their governments. It should be self-evident that they need rising consumer prices like a hole in the head. Both Ms. Lagarde of the IMF and Mr. Draghi of the ECB have uttered remarks about this in the recent past (see: “Ogre Spotting” and “No, Deflation is Not a Danger” for details).

The bellyaching and whining continued this week, with Ms. Lagarde taking the lead again. In the process, she seems to have coined a new economic term, namely “low-flation”. No new term seems actually needed, as “low-flation” of course remains “inflation”, or rather its effect, namely rising prices.

“”Low-flation,” particularly in the euro area, is an emerging risk to advanced economies, International Monetary Fund Managing Director Christine Lagarde said Wednesday.

“A potentially prolonged period of low inflation can suppress demand and output-and suppress growth and jobs,” she said at the School of Advanced International Studies as she called for more monetary easing by the European Central Bank and continued action by the Bank of Japan.

It may be the first time Lagarde has used such a phrase, though she has made clear her concern over the lack of euro-zone inflation for some time. Lagarde also saw emerging-market economies and geopolitical tensions as short-term risks, and unemployment, high levels of debt and financial uncertainty as medium-term concerns. Lagarde said overall growth remains too slow and weak, and the IMF projects “modest improvements” in 2014 and 2015.”

Allow us to repeat here that this is simply long discredited hokum, that our bien pensants never fail to drag up again and again. Keynesian voodoo-economics should by rights have been buried after the experience of the 1970s, but it has tenaciously clung to life (we believe we know why, and it has nothing to do with its qualities as an economic theory).