Business

Last updated: 6 july, 2009 - 12:26 GMT

Is inflation or unemployment worse?

Indian supermarket

A Mumbai supermarket - India's annual inflation has slipped into negative territory for the first time in 30 years

Business Daily unravels the big debate of our time with the help of two of the biggest thinkers on the planet

Should we worry more about unemployment or inflation?

Is the massive spending of taxpayers' money by governments, to make good the current aversion to spending by everybody else, storing up inflation or not?

The fear in some quarters, is that governments will eventually print money to finance today's spending.

Policy priorities

In a way, it is a re-run of the debate that has rumbled on since the 1930s between Keynesians on one side - and neo-classical economists and monetarists on the other.

Here's the core of it today from two of the world's big-hitters, in a debate organised by the New York Review of Books and by Pen, the writers' organisation.

Paul Krugman, Nobel laureate and professor of economics in Princeton University, and first Niall Ferguson, history professor at Harvard University.

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Bond warnings

Those who think inflation is a problem even as unemployment rises relentlessly, cite bond prices.

If markets think inflation is in the distant pipe-line, they think governments will eventually raise interest rates and so the price of government bonds will fall - which is what's been happening.

So that's the technicality of it all - the signs to look for. To analyse the debate, Steve Evans asked the BBC's economics editor, Stephanie Flanders, what the pair of them were really saying.

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First broadcast on 7 July 2009

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