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Home Publications Blogs Beat the Press Inflation Can Be Good: Washington Post Gets One Right!

Inflation Can Be Good: Washington Post Gets One Right!

Saturday, 18 September 2010 08:33

The Washington Post ran an article with the headline: "how a touch of inflation could boost the economy." Give them credit for finally getting something about the economy right.

Of course the article did not go so far as to mention the idea of the Fed deliberately targeting a higher inflation rate in the range of 3-4 percent. This policy has been advocated by such well-known radicals as Greg Mankiw, President Bush's former top economic advisor, Olivier Blanchard, the chief economist at the IMF, and Federal Reserve Board Chairman Ben Bernanke.

Comments (15)Add Comment
Keynesian nonsense
written by Wes, September 18, 2010 9:45
Inflation is good for mega banks who get their hands on the new money first, and the politicians who can buy more voters with their own money.
Keynesian eCONomists are a menace to society.

written by wellbasically, September 18, 2010 10:36
The dollar now buys one fifth the gold it did in 2002, I think they've done enough.

What do you want, a ten-times drop like we had in the 1970's? That worked out great.
written by izzatzo, September 18, 2010 10:40
Inflation kills. The housing bubble was a myth. The recession and unemployment is a myth. Deficit stimulus spending is a myth.

It's all about pulling demand forward with excess borrowing, then pushing supply backward to pay for it with artificial government interference.

Let demand and supply fall where it may, to a natural equilibrium level of full employment. Stop creating artificial shortages and surpluses with socialism.

As an economic expert, I sell guns and gold at flea markets from the back of my ex-military Hummer. I also sell a book I wrote, The 100 Most Dangerous Economists, so the public will know who the quacks are.
written by mich, September 18, 2010 10:41
It's good too for people with debt in secure, well paid jobs and bought homes at bubble prices, with government subsidy oh wait.
Lets brake some windows, start some wars, seize up some engines, its all good.
inflation and job creation
written by Joe, September 18, 2010 11:07
What do you want, a ten-times drop like we had in the 1970's? That worked out great.

It worked out great for job creation. 2.5 million jobs a year were created under Carter while 2.09 million a year were created under Reagan.

"Presidents And Prosperity" on Forbes
the 70s
written by wellbasically, September 18, 2010 11:29
Yeah the 70s were a great decade...

And wasn't it great all the women going back to work as grocery cashiers, that's so much better than staying home with your kids.

It only took 30 years for real wages to get back to their 1971 level, and so what if we saw a massive rise in crime, divorce, single motherhood, drug abuse and so on... so what if there was a massive collapse in developing countries around the world. As long as it looks like wages are going up even if they're not. Hey people are stupid, isn't that the theme of this blog, and you have to manipulate them better than the other guy.
written by Peter K., September 18, 2010 12:08
As the Post's excellent journalist writes,

Somewhat higher inflation could strengthen the ailing economy. Inflation would make the heavy debt that Americans carry a bit more manageable as wages rise but the amount owed stays the same. And it would create more incentive for businesses to invest their cash rather than sit on it, because inflation would reduce the value of hoarded money.

Some economists fear outright deflation, a destructive, self-reinforcing cycle of falling prices that can cause a long period of economic misery.

I bet the Fed does something after the election.
written by Bailey, September 18, 2010 2:35
UNTIL Economists correlate inflation to a population sampling, discussion of it is best considered solely as a sales pitch forwarded by special interest groups to support their agendas. The one thing introducton of current "inflation" measurements does NOT do is add reasoning to any argument.
written by Jay, September 18, 2010 2:57
I understand the report and the article but it still seems to ignore an underlying problem. I do not believe people are sitting on cash because they believe the value of the dollar will increase in the future. People are sitting on cash because the financial markets are high risk and have low returns. Also, job security is basically non-existant. Not to mention things are just expensive.

People are displaced from their careers and missing on out opportunities to maintain the experience necessary to jump back into their fields when things improve. Cars are still expensive. Homes are still expensive. Rent is expensive. Entertainment and communication services are expensive. Clothes and shoes are expensive.

It is like business are controlling inventory to point of never allowing consumers to benefit from reduced demand or excess supply. Instead, businesses find ways to make increasingly more expensive goods available or desirable to people that cannot truly afford things. They can buy them but the consumers sacrifice their savings and live essentially check to check.

I feel a big problem is overvaluation. I believe if things were reasonably priced then demand would increase among those with the means to help spur demand that leads to more jobs.

Again, I have no empirical basis but this it how things appear to me.
Jay has it right
written by Wes, September 18, 2010 3:46
Inflation is one of the tools for keeping people on a treadmill.
No one is really going to delay buying that coveted refrigerator or dishwasher for a year hoping for a 1-2% price drop, as some eCONomists claim while describing the dangers of deflation. This is ridiculous. The U.S. was in mild deflation or non-existent inflation for a large part of it's history. (This is natural because of technological advances and increasing productivity.) That is, until the "progressives" and the Fed arrived at the scene.
All the gubmint and the fed are doing right now is trying to prevent the prices from returning to a proper level. At that point the inventory would clear and the economy and the employment pick up again. Recession would be over much quicker - just like in 1921, check it out.

Shills in the media are spreading lies and obfuscations about this.
I'd like to see them try
written by ts, September 18, 2010 6:21
Though I'm curious since it doesn't appear that any previous Fed policies (interest rates to zero, tripling of the monetary base) have had any effect on the inflation rate.

Also, why is a target only a point or two above the current rate of inflation the recommended level?

I guess it's a measure of the desperation of mainstream economists at the failure of all the other monetary policies so far to make a dent in the recession that this type of claptrap is advanced as a serious solution. But holding this type of marginal adjustment up as some type of economic savior really makes economists look silly.
written by skeptonomist, September 18, 2010 7:51
The demand that the Fed raise the inflation target can be taken seriously as soon as the proponents specify exactly what will be done to increase inflation that hasn't already been done. Or if this is supposed to be some kind of reassurance (not to say incantation) perhaps they can give some examples of exactly how this reassurance (not the inflation, which is hypothetical) is supposed to change the decisions of economic players and increase demand.
The Hand Is Always Quicker Than The Eye
written by Scott ffolliott, September 18, 2010 8:15
The fundamental issue upon which the Federal Reserve Bank has failed completely is workers having jobs that not only pay the bills, but also allow for savings for retirement. The balance that this private bank was to provide for both capital and labor has been missing for generations.
Fiddle with this or fiddle with that as we argue about how to improve the economy for capital mean nothing to working people in the U S of A for the horse has left the barn. Nothing the Federal Reserve Bank is doing will bring production back to local industries, family farms and main street merchant.
Shall we argue for the public good against private profit? How can we achieve the public good? How do we get back what we let go a generation ago? How can we bring democracy to the U S of A?
Fancy words and fancy intentions do not feed our families with good food, provide an educational environment that fosters creative, thoughtful citizens, or provide human care and compassion for those of us who have lost their good health or bring back from the dead those thousands upon thousands each year who have lost their lives earning a wage.

“The only devils in this world are those running around in our own hearts,
and that is where all our battles should be fought”.
~Mahatma Gandhi
why we haven't seen inflation numbers
written by wellbasically, September 19, 2010 6:33
The dollar is much weaker, however inflation hasn't shown up in the official figures because fire sales and bankruptcies keep the prices down. For instance the inflation of the 1970s did not truly appear until the 90s. In the meantime, everybody had to wait for enough economic strength so that they could renegotiate their wages and salaries back up to Bretton Woods levels.

Life was shitty in the 70s, 80s and part of the 90s because people were dealing with diminished savings, old people had the problem of COLAs not matching actual prices, etc.

I don't know why somebody who claims to be for the people would want this.
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.