{"id":9315,"date":"2011-08-29T05:30:01","date_gmt":"2011-08-29T09:30:01","guid":{"rendered":"http:\/\/www.geneveith.com\/?p=9315"},"modified":"2011-08-29T05:30:01","modified_gmt":"2011-08-29T09:30:01","slug":"inflation-as-a-solution","status":"publish","type":"post","link":"https:\/\/www.patheos.com\/blogs\/geneveith\/2011\/08\/inflation-as-a-solution\/","title":{"rendered":"Inflation as a solution"},"content":{"rendered":"\n<\/head>

Some economists are suggesting that a cure for our economic woes would be for the government to purposefully create inflation.\u00a0 Robert Samuelson explains:<\/p>\n

The idea now is that the Fed would pump money into the economy until inflation \u2014 a rise in most prices, not just erratic gasoline prices \u2014 reached a desired level of perhaps 4 percent to 6 percent. Harvard economist Kenneth Rogoff admits the policy is \u201cradical.\u201d He supports it only because he sees the main threat to the U.S. and European recoveries as massive \u201cdebt overhangs\u201d of private and governmental debt. \u201cPeople are retrenching because they realize that high debt makes them vulnerable,\u201d he says.<\/p>\n

Inflation is one way to reduce debt burdens. As wages and prices rise, the value of existing debt erodes. Consumers, businesses and governments are liberated to spend more freely.<\/p>\n

To be sure, higher inflation represents a wealth transfer to debtors (who repay in cheaper dollars) from creditors (who receive cheaper dollars). That\u2019s unfair, Rogoff says, but it may be less unfair and disruptive than outright defaults by overborrowed debtors.<\/p>\n

\nFaster inflation might boost the economy in other ways, too. If people think prices of cars, appliances or homes will be higher next month or next year, they may buy now instead of waiting. Higher inflation may also allow the Federal Reserve to lower effective interest rates. If interest rates stay below inflation \u2014 though that\u2019s hardly assured \u2014 the resulting cheaper credit should spur borrowing.\n

All this explains why higher inflation appeals to economists across ideological lines. While Rogoff is slightly right of center, liberal economist and columnist Paul Krugman also favors it. The trouble is this: Inflation is hard to manipulate in precise and predictable doses. Once people become convinced that government will tolerate or encourage it, they adapt in unforeseen ways. We can\u2019t know what would happen now, but we do know what happened in the 1960s and 1970s.<\/p>\n

One adaptation was that companies and workers raised wages and prices much faster than expected. Higher interest rates followed. Rates on 10-year Treasury bonds went from 4 percent in 1962 to 8 percent in 1978. The stock market stagnated for nearly two decades. Consumers reacted to greater uncertainty by increasing their savings rates from 8 percent of disposable income in 1962 to 10 percent by 1971. That\u2019s exactly the opposite of today\u2019s goal \u2014 more, not less, consumer spending.<\/p>\n

There might be other unpleasant surprises. If retail prices rose faster than wages \u2014 a good possibility with unemployment at 9.1 percent \u2014 higher inflation could act as a drag on the economy by reducing workers\u2019 \u201creal\u201d purchasing power. If investors decided that the Fed had gone soft on inflation, there might be a panicky flight away from the dollar on financial and foreign exchange markets.<\/p>\n

Moreover, the power of higher inflation to erode the real valu eof U.S. government debt is limited, because much of that debt is short-term. About 30 percent matures in less than a year; another 25 percent or so matures in less than three years. All this debt will be refinanced. With higher inflation, it would probably be refinanced at higher interest rates that investors would demand as protection against rising prices.<\/p>\n

Inflation is not the answer. Remember: The economy\u2019s basic problem is poor confidence spawned by pervasive uncertainties. The Fed shouldn\u2019t make the problem worse by embracing policies that, whatever their theoretical attractions, will create more uncertainties in the real world.<\/p>\n

via Inflation is not the answer \u2013 The Washington Post<\/a>.<\/p>\n

This is what Christian presidential candidate William Jennings Bryan called for in the 19th century with his famous \u201cCross of Gold\u201d speech, since inflation would make it easier for farmers to pay their debts over and against the banking interests.\u00a0 Do you think higher wages and higher prices for everything would be a good way to get the economy moving again?<\/p><\/div>\n<\/blockquote><\/body><\/html>\n","protected":false},"excerpt":{"rendered":"

Some economists are suggesting that a cure for our economic woes would be for the government to purposefully create inflation.\u00a0 Robert Samuelson explains: The idea now is that the Fed would pump money into the economy until inflation \u2014 a rise in most prices, not just erratic gasoline prices \u2014 reached a desired level of […]<\/p>\n","protected":false},"author":1281,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[725,1086],"class_list":["post-9315","post","type-post","status-publish","format-standard","hentry","category-economics","tag-economic-crash","tag-inflation"],"yoast_head":"\nInflation as a solution<\/title>\n<meta name=\"description\" content=\"Some economists are suggesting that a cure for our economic woes would be for the government to purposefully create inflation.\u00a0 Robert Samuelson explains:\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.patheos.com\/blogs\/geneveith\/2011\/08\/inflation-as-a-solution\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Inflation as a solution\" \/>\n<meta property=\"og:description\" content=\"Some economists are suggesting that a cure for our economic woes would be for the government to purposefully create inflation.\u00a0 Robert Samuelson explains:\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.patheos.com\/blogs\/geneveith\/2011\/08\/inflation-as-a-solution\/\" \/>\n<meta property=\"og:site_name\" content=\"Cranach\" \/>\n<meta property=\"article:author\" content=\"https:\/\/www.facebook.com\/cranachblog\/\" \/>\n<meta property=\"article:published_time\" content=\"2011-08-29T09:30:01+00:00\" \/>\n<meta name=\"author\" content=\"Gene Veith\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Gene Veith\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.patheos.com\/blogs\/geneveith\/2011\/08\/inflation-as-a-solution\/\",\"url\":\"https:\/\/www.patheos.com\/blogs\/geneveith\/2011\/08\/inflation-as-a-solution\/\",\"name\":\"Inflation as a solution\",\"isPartOf\":{\"@id\":\"https:\/\/www.patheos.com\/blogs\/geneveith\/#website\"},\"datePublished\":\"2011-08-29T09:30:01+00:00\",\"dateModified\":\"2011-08-29T09:30:01+00:00\",\"author\":{\"@id\":\"https:\/\/www.patheos.com\/blogs\/geneveith\/#\/schema\/person\/f9ca8670bcc51908a78994c0484dbfa1\"},\"description\":\"Some economists are suggesting that a cure for our economic woes would be for the government to purposefully create inflation.\u00a0 Robert Samuelson explains:\",\"breadcrumb\":{\"@id\":\"https:\/\/www.patheos.com\/blogs\/geneveith\/2011\/08\/inflation-as-a-solution\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.patheos.com\/blogs\/geneveith\/2011\/08\/inflation-as-a-solution\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.patheos.com\/blogs\/geneveith\/2011\/08\/inflation-as-a-solution\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.patheos.com\/blogs\/geneveith\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Inflation as a solution\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.patheos.com\/blogs\/geneveith\/#website\",\"url\":\"https:\/\/www.patheos.com\/blogs\/geneveith\/\",\"name\":\"Cranach\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.patheos.com\/blogs\/geneveith\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.patheos.com\/blogs\/geneveith\/#\/schema\/person\/f9ca8670bcc51908a78994c0484dbfa1\",\"name\":\"Gene Veith\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.patheos.com\/blogs\/geneveith\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/054d79faea5d476edd8f99e5f14fb17f?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/054d79faea5d476edd8f99e5f14fb17f?s=96&d=mm&r=g\",\"caption\":\"Gene Veith\"},\"description\":\"Gene Edward Veith, Jr. is a writer and retired literature professor, serving as Provost Emeritus at Patrick Henry College. 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