October 28, 2013


In Fed and Out, Many Now Think Inflation Helps (BINYAMIN APPELBAUM, 10/28/13, NY Times)

Inflation is widely reviled as a kind of tax on modern life, but as Federal Reserve policy makers prepare to meet this week, there is growing concern inside and outside the Fed that inflation is not rising fast enough.

Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment.

The Fed has worked for decades to suppress inflation, but economists, including Janet Yellen, President Obama's nominee to lead the Fed starting next year, have long argued that a little inflation is particularly valuable when the economy is weak. Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly.

The school board in Anchorage, Alaska, for example, is counting on inflation to keep a lid on teachers' wages. Retailers including Costco and Walmart are hoping for higher inflation to increase profits. The federal government expects inflation to ease the burden of its debts. Yet by one measure, inflation rose at an annual pace of 1.2 percent in August, just above the lowest pace on record.

"Weighed against the political, social and economic risks of continued slow growth after a once-in-a-century financial crisis, a sustained burst of moderate inflation is not something to worry about," Kenneth S. Rogoff, a Harvard economist, wrote recently. "It should be embraced."

Congress could pass just a few laws and produce inflation by counteracting the past century:

(1) Smoot-Hawley II--Abrogate all our trade treaties.

(2) Johnson-Reed II--Deport every non-citizen immigrant.

(3) NLRA II--require that all employees be union members.

(4) Personal Responsibility and Work Opportunity Reconciliation Act II--require all recipients of federal aid to have jobs and employers to hire them

(5) King Ludd Act--banning the use of electroncs-based technology

By just getting rid of free trade, value-added based wages, retirement/unemployment, and technology we could so severely impede efficiency and productivity that prices would rise.

Posted by at October 28, 2013 6:45 AM

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