Brad de Long writes:
>Hyperinflation is not a victory for anyone...
Any big application of the inflation tax invovles hyperinflation, but are we absolutely sure that this policy will lead to hyperinflation? One possibility (and I am no expert on the details of the Russian economy) is that after some steep price rises, we might actually see a rise in real output. After all, aren't there a lot of unemployed workers and unutilized factories that could be put to work if the amount of money increased, replacing barter? relying on barter (which is what the Russian economy has been doing) puts a spoke in the wheel of commerce, preventing most normal economic activity. In this Keynesian case, the Russian gov't could collect more taxes simply because there is more economic activity.
On the other hand, it's quite possible that the severe political crisis -- and by that I mean the total disorganization of the Russian government's activities (such as tax collection) not the governmental crisis of who's going to be PM, which is only symptomatic -- implies a repetition of the early-1920s German hyperinflation scenario.
But contrary to what our friends at the IMF always say, it's not irresponsible politicians and central bankers who cause hyperinflation. It's a common symptom of countries that have recently lost wars or are suffering through civil wars or are involved in explicit and two-sided class wars, where the government _can't_ raise taxes or cut outlays without making their political situations _even worse_. (Consider the US Confederacy, Nationalist China when they were losing to Mao, much of Israeli and Latin American history, etc.) We should remember that -- according to Jeffrey Sachs and others -- that the "West" and the IMF made the Russian economic situation much worse. This in turn deepened the political crisis. So IMF and the "West" deserves some of the blame for the hyperinflation, just as the Versailles Treaty deserves some of the blame for the German hyperinflation. (The two situations are very similar: the winners of the wars decide to try a Carthaginian Peace, destroying the loser even more, causing social chaos and hyperinflation.)
Jim Devine jdevine at popmail.lmu.edu & http://clawww.lmu.edu/Departments/ECON/jdevine.html