Sunday, August 28, 2011

Another Inflation Hawk Argues for a Higher Inflation Target

Economist Kenneth Rogoff, no liberal, is arguing for a higher inflation target:
If the Federal Reserve raises its target inflation rate by several percentage points - up from around 2 percent, where it’s been for the past decade, to somewhere in the neighborhood of 4 to 6 percent - and injects new money into the economy until it gets there, then debtors will get some relief and the wheels of the economy will once again start to turn.
One of the biggest propaganda victories of the 20th century was convincing the middle class that inflation is the worst possible thing that can happen to them. High inflation sucks, to be sure, but people tend to forget that inflation also reduces the real value of one's debts.

We also hear a lot about the "elderly who live on a fixed income." Except that most elderly people depend on Social Security for the bulk of their income, and SS is inflation-protected via COLAs.

However, there is one class of people for whom inflation is in every and all cases an unmitigated disaster: bondholders, a.k.a. the owning class. These are the folks who make money from money. As Rogoff, an inflation hawk, notes, tolerating higher inflation will result in a transfer of income from financiers to workers, (or as he puts it in less class-war terms: from creditors to debtors). That's exactly right. All economic policy is a question of the distribution of income.

2 comments:

desmoinesdem said...

Isn't inflation known as "the debtor's friend"? If I recall correctly, one contributing factor of the mid-1980s farm crisis was Reagan making it a priority to bring down inflation. So many farmers had incurred debts in the late 70s, when interest rates were in the 15-18 percent range. Not that it was healthy for the economy overall to have those Carter-era interest rates, but there are winners and losers with every inflation scenario.

Lauren Michelle Kinsey said...

Maybe if we all had a guaranteed annual income (the program that MLK was advocating for in his war on poverty). And the GAI was inflation protected with COLAs, it would be easier to build a pro-inflation movement.

Or if our national minimum wage was actually at a liveable level and it was inflation protected with COLAs, that would help also.

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