Inflation May Not Be All That Bad. Really, Trust The Economists

inflation (1)

The WSJ Real Time Economics Blog has an interesting post that discusses the possibility that the Chinese will allow inflation to do the same thing essentially that a revaluation of the currency would accomplish. Basically, make goods more expensive relative to their trading partners and thus move towards some sort of adjustment.

It makes for interesting reading though one wonders if the Chinese leadership really wants to introduce something of this nature into their society. But leave that for a second and note the last paragraph of the article:

And heterodox ideas about inflation are getting a broader hearing these days, as the financial crisis pushes many thinkers to re-examine conventional practices. Oliver Blanchard, chief economist of the International Monetary Fund, now thinks that even developed economies probably can tolerate a higher level of inflation they have in the past – with central banks perhaps targeting 4% a year instead of 2%.

Uh-oh, I hadn’t seen much about this. I like the way they phrase this sort of thing. “… economies probably can tolerate a higher level of inflation …” as if there weren’t flesh and blood people who might well suffer mightily from such an increase in the price level.

Inflation cures a lot of ills not the least of which is overly large government debt obligations. Unfortunately, it’s not all that easy to control once it gets a heat on and even if you do keep a lid on it the distribution of inflation throughout an economy can be quite uneven. Let it push up food or energy prices inordinately and the citizens suffer mightily.

I get a queasy feeling when I start seeing talk of a little bit of inflation being a good thing. It never really stops at a little bit. Maybe we would all be better off if the economics profession could just look inward for the next decade or so and figure out how they so badly missed everything over the past ten years rather than prescribing acceptance of a curse that we’ve fought mightily before to get over.

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