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I don’t think hyperinflation means what Jack Dorsey thinks it means

Every time a billionaire makes a prediction a nutty prophecy get its wings

Jack Dorsey, co-founder and CEO of Twitter and Square, listens during the bitcoin 2021 conference. He tweets frequently about bitcoin. (Eva Marie Uzcategui/Bloomberg News)

I taught economics in eastern Ukraine for a year in the early ’90s. It was an interesting experience for a variety of reasons. One of them was that during my stint there the country experienced a bout of hyperinflation. When I first arrived in the country, the transitional currency — which I swear to God was called the “koupon” — was trading at about 450 to the dollar. By the time I left 10 months later, the koupon was trading at 50,000 to the dollar. A year later it was at 150,000 to the dollar.

Hyperinflation has corrosive effects on a society, encouraging a strong distrust of institutions for obvious reasons. In eastern Ukraine, it fed a deep cynicism about the Ukrainian state and a weird nostalgia for the “good old days” of the Brezhnev-era Soviet Union. Hyperinflation in Germany and parts of Eastern Europe in the 1920s was even more severe, and it does not take a political economist to inform you that this led to very bad things a decade later.

So I took notice when Twitter and Square CEO Jack Dorsey tweeted Friday that “Hyperinflation is going to change everything. It’s happening.” He later elaborated, “it will happen in the US soon, and so the world.”

This is quite the bold claim. No doubt inflation is on the rise in the United States, as surging U.S. demand for goods has had to cope with a global supply chain that is stretched to its absolute limit. As Slate’s Jordan Weismann notes, supply has increased as well but not quite at the pace of demand.

Inflation has been above 5 percent for the past three months. Federal Reserve Chair Jerome H. Powell has acknowledged that bottlenecks in the global supply chain could lead to a longer period of transitory inflation than forecast in the spring. Over the weekend Treasury Secretary Janet L. Yellen predicted that inflation would likely stay above 2 percent well into 2022.

Inflation above 5 percent should be a source of concern, particularly to central bank chairs tasked with ensuring price stability. That said — and I cannot stress this enough — 5 percent is not remotely close to hyperinflation. If it is, then all Americans lived through hyperinflation in 1990 and did not even realize it. People tend to notice when hyperinflation is happening.

Why does Dorsey think hyperinflation is happening? It could be that it’s been 30 years since the United States has experienced any appreciable inflation and so anyone under the age of 50 thinks that a larger-than-usual price spike is hyperinflation lurking around the corner. It could be that when someone is a billionaire they can pontificate about anything and most folks will nod along sagely because speaking truth to money is hard. Or it could be that Dorsey is way into cryptocurrency and is attempting to goose that market by suggesting it hedges against inflation.

Whatever the reason, his assertion is almost certainly wrong. Extraordinary spending fueled by the coronavirus is winding down, and whatever infrastructure bills pass Congress will be much more modest in scope on a per annum basis. Even the most pessimistic takes on supply chain issues believe that the problem is transitory, so a shift to hyperinflation is exceedingly unlikely. Global supply chains are likely to unclog themselves after the Lunar New Year.

Some analysts think Dorsey is on the mark, which to be honest makes me question their credentials. For example, Yahoo Finance anchor Brian Sozzi endorsed Dorsey’s musings, warning that, “we are one bad snowstorm away from oil prices going north of $100 a barrel and natural gas prices going even further through the roof.” Sounds bad, and I certainty do not want to see it, but oil prices have been over $100 a barrel for more than a quarter of this century without hyperinflation rearing its ugly head.

I am old enough to have survived previous warnings of hyperinflation and lived to tell the tale — by which I mean I was an adult a decade ago. There is a certain breed of thinker who looks at fiat currency, does not trust it and predicts hyperinflation around the corner. The only difference this time around is that there is mild inflationary pressures stoking these fears.

Perhaps the real reason that Dorsey and others believe hyperinflation is happening is that so many of its corrosive effects on society have already taken place minus the dramatic increase in the price level. If there is such little trust in society and government, why not predict hyperinflation? In a buyer’s market for cynicism, pushing hyperinflation caters to the chaos that so many Americans seem to crave.