Harvard economist Kenneth Rogoff has spent his career fighting inflation. Now he thinks it might just save the economy.
LIKE CORRUPTION, crime, and asbestos, “inflation” is a word that many Americans imagine in all-red capital letters, flashing across TV screens amid warnings of crisis. For anyone who remembers the gloomy, scary 1970s, when the inflation rate in the United States reached double digits, the word is shorthand for an economy that has spiraled out of control, the dollar losing value and prices climbing feverishly. “Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man,” said Ronald Reagan in 1978, as nervous citizens imagined the day when they’d have to push a wheelbarrow full of cash to the grocery store in order to buy a loaf of bread.
That particular nightmare never came to pass, thanks to drastic measures taken by the Federal Reserve. For the better part of the past 30 years, the dollar has stayed stable, reassuring American families and the nation’s trading partners, with the central bank standing guard over the economy and doing everything necessary to keep inflation low.
You might say that Kenneth Rogoff has been one of the guards. As a research economist at the Federal Reserve during the first half of the 1980s, he helped ensure that the word “inflation” would never again flash across American TV screens. His reputation as a conservative-minded inflation hawk followed him from the Fed to the International Monetary Fund to his current position in the economics department at Harvard.
But then came the financial crisis of 2008, and the ensuing slump. And as the economy has continued to stagnate, Rogoff, 58, has become the flag-bearer for an unlikely position: that as we struggle to help the economy find its way out of the darkness, inflation could be the answer. It’s time, Rogoff says, to put Reagan’s “hit man” to work for the good guys.
Over the past several years, Rogoff has emerged as one of the world’s leading experts on the history of financial crises and how they work, a unique perch that has given him a long view on what is happening to our economy and what lies ahead. In the bestselling 2009 book “This Time Is Different,’’ he and Carmen Reinhart , currently a senior fellow at the Peterson Institute for International Economics , laid out a detailed analysis of financial crises that have taken place around the world going back 800 years, and they put forth an alarming idea about our current predicament. What we’re going through, they argued – what we’ve been going through ever since the subprime mortgage crisis – has not been just a typical recession, as our leaders have been treating it, but something much worse, something that demands altogether different tools to stop it.