“Deflation is a bigger threat than inflation,” concludes the headline for an excellent piece by economist Gavyn Davies in the Financial Times. Perhaps. But there should be two parts to an assessment of threats like this. First, estimate the probability of the event (e.g., deflation), and then estimate the consequences. Davies makes a great start on the probability part. His argument would be even stronger had he also noted that the consequences associated with deflation are likely to be (far) worse than inflation because governments lack the tools to fix the problem.
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What, Us Worry? |
Professor Dieter Helm (Oxford) is a very fine fly fisherman, and an even better economist. If you haven’t done so, take a look at his new book “The Carbon Crunch: How We Are Getting Climate Change Wrong — and How to Fix It” for a bit of unconventional wisdom. He argues that politicians and the general public have not shown any real interest in addressing climate change. Helm argues that places like Europe should focus on setting a price for carbon that would cover consumption (and not just production), and that fracking could be a good “bridge” technology for reducing consumption of coal. The book is readable and insightful for those interested in the inside track on climate policy. 
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