The Coming Inflation Tax

Posner ponders Obama's push for healthcare reform and Krugman's agenda:

My own heretical view is that Americans are undertaxed, and so if I thought that the increase in the public debt was going to be financed by higher taxes I would not be upset. But Congress and the public seem adamant against tax increases, even when they take the form of closing ridiculous loopholes, and against spending reductions, even in ridiculous programs such as farm subsidies; and this combination of aversions makes it likely that increases in the public debt will be financed by a combination of continued borrowing, but at higher and higher interest rates, and inflation.

A bit of inflation can be a good thing in a depression, because it operates as a tax on cash balances and thus reduces hoarding and stimulates spending. But I am worrying about the inflation that hits after the depression, when the government decides that it can no longer finance the public debt by borrowing, cannot raise taxes, cannot cut spending, and is left with having to debase the currency. I would like to see greater efforts by the Administration and by the economics profession to determine, so far as may be possible to do, the gravity of this danger.

Amen on all counts.