All the policy talk is focused on the lessons from the Great Depression and the current Big Recession, but we should not forget the great inflation period of US economic history. Now the United States did not have the same inflation as the Weimar Republic or any of the other great hyper-inflations, but inflation had a significant cost on all Americans both on the run up and on the way down.
Thanks should go to Robert Samuelson for bringing this timely topic to what should be the front of any current discussion. No, we are still in a deflation period but the seeds of futures inflation are being planted. The most important seed is the complacency concerning its cost.
Most policy-makers are only worried about one thing, full employment. The cost of inflation is a small price to push us closer to full employment. Given the choice, we will be willing to sacrifice the many for saving the few on the road to full employment. We are doing this again in this crisis. There is no question that stimulus is needed and monetary policy had to be eased significantly, yet the talk about inflation during the current crisis is nill. Nill is a strong word but I have not heard anyone from the executive branch of government say anything about inflation in the long-run. This is not about inflation today but what may happen a few years from now.
Thanks should go to Robert Samuelson for bringing this timely topic to what should be the front of any current discussion. No, we are still in a deflation period but the seeds of futures inflation are being planted. The most important seed is the complacency concerning its cost.
Most policy-makers are only worried about one thing, full employment. The cost of inflation is a small price to push us closer to full employment. Given the choice, we will be willing to sacrifice the many for saving the few on the road to full employment. We are doing this again in this crisis. There is no question that stimulus is needed and monetary policy had to be eased significantly, yet the talk about inflation during the current crisis is nill. Nill is a strong word but I have not heard anyone from the executive branch of government say anything about inflation in the long-run. This is not about inflation today but what may happen a few years from now.
The cost of inflation is significant especially for the poor and middle class. All of those we are not indexed to inflation will have an erosion of purchasing power. All of those who have nominal assets like bonds in their portfolio, will suffer. Yes, the the debtors will be better off but even here there are problems. More of our debt rolls over at variable interest rate so the cost may increase under inflation. Prices will be distorted. Business will not make the proper investments. The cost will affect employment if business make poor investment decisions. The distortions will exist with the tax system as more are pushed up into higher brackets with no change in their overall real income. The government benefits from the decline in real values for debt but even here the cost will be high as capital moves to other markets and the uncertainty about the economy leads to less overall economic growth. Of course, this may be a problem for someone else down the road.
The Samuelson book, describes the period of great inflation and all of the plans used to stop it. The craziness of price controls or Whip inflation now WIN buttons seems almost quaint now that we look back on that period, but the distortions to the economy at the time were real. Samuelson goes through the history of this period and destroys some of the myths that have developed around our inflation history. As a financial writer, he does a good job of making the story come alive but with a strong knowledge of the economics. If Green Shoots take hold and some growth returns at the end of this year, this book will become even more timely.
The Samuelson book, describes the period of great inflation and all of the plans used to stop it. The craziness of price controls or Whip inflation now WIN buttons seems almost quaint now that we look back on that period, but the distortions to the economy at the time were real. Samuelson goes through the history of this period and destroys some of the myths that have developed around our inflation history. As a financial writer, he does a good job of making the story come alive but with a strong knowledge of the economics. If Green Shoots take hold and some growth returns at the end of this year, this book will become even more timely.
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