I noticed a recent post by Paul Krugman that expressed his usual exasperation at the theoretical incompetence of those he disagrees with.   Here is a quotation from the post:

. . . further confirmation that we’re living in a Dark Age of macroeconomics, in which hard-won knowledge has simply been forgotten. What’s the evidence? Niall Ferguson “explaining” that fiscal expansion will actually be contractionary, because it will drive up interest rates. At least that’s what I think he said; there were so many flourishes that it’s hard to tell. But in any case, this is really sad: John Hicks knew far more about this in 1937 than people who think they’re sophisticates know now.

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The Economist has a recent article about the German “banking disaster”:

IT PUZZLES many in Germany that the country’s punctilious parsimony and restrained housing market have not saved it from a banking crisis that seems every bit as bad as those suffered by spendthrifts abroad.

I guess this is a puzzle for those who still think the American banking crisis caused the sharp fall in AD last fall.  For those of us that have always seen the causality going the other way—from falling AD to a weakening banking sector—it comes as no surprise at all.

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The money supply is soaring.  Renowned monetarist Allan Meltzer says inflation is our greatest threat:

Besides, no country facing enormous budget deficits, rapid growth in the money supply and the prospect of a sustained currency devaluation as we are has ever experienced deflation. These factors are harbingers of inflation.

When will it come? Surely not right away. But sooner or later, we will see the Fed, under pressure from Congress, the administration and business, try to prevent interest rates from increasing. The proponents of lower rates will point to the unemployment numbers and the slow recovery. That’s why the Fed must start to demonstrate the kind of courage and independence it has not recently shown.

In the other corner is Nobel prize-winning Keynesian Paul Krugman, who says wage deflation is coming:

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I had a dream where my plumber won the multi-state Megabucks.  Sixty million dollars.  Afterward everyone began treating him like a genius.  He started being invited onto TV shows, where he provided folksy, homespun wisdom about everything from global warming to the current economic crisis.  Of course in the real world nobody would be treated like a sage simply because he got lucky and made a lot of money.  That’s just the stuff of Hollywood movies.  At least I thought so until I saw an article (here) on Yahoo entitled “Buffett says government is doing the right things.”  Here is an excerpt:

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