by Doctor Science
Paul Krugman often wonders why the public and policymakers seem so deathly afraid of inflation. I don’t know about policymakers, but I know why at least one member of the Regular Public (me) is afraid of it: because I don’t *believe* in wages going up, but I sure believe in prices going up. This is possibly another post in which I will demonstrate that I don’t understand economics.
In a multi-blog discussion about whether the Fed should open the inflation spigot a trifle, Mike Konczal at Rortybomb talked about
a wide refocusing of the mechanisms of our society towards the crucial obsession of oligarchs: wealth and income defense.
Paul Krugman says:
That has to be right. It doesn’t necessarily take the form of pure cynicism; it’s more a matter of the wealthy gravitating toward views of economic policy that make immediate sense in terms of their own interests, and politicians believing that only these views count as Serious because they’re the views of wealthy people.
The context is a discussion about inflation — Krugman describes the current situation as
So, terrible growth prospects; low inflation; oh, and low interest rates, with no sign of the bond vigilantes. Ordinary macroeconomic analysis tells you very clearly what we should be doing: fiscal expansion and monetary expansion by any means we can manage; in fact, the case for a higher inflation target pops right out of just about any model capable of producing the kind of mess we’re in.
Konczal and Krugman agree that the Fed should be aiming toward a slight increase in inflation, largely because it means that the wealthy people and corporations who are currently sitting on cash reserves would have an incentive to move them into the economy.
I commented:
I’m sure you’re correct in a macroeconomic sense that Inflation transfers real resources away from those whose income is money and towards other agents in the economy, and that it thus can be a way of getting wealth out of the hands of wealthy hoarders and into productive circulation.
But I think you are *radically* underestimating how much this prospect frightens regular (non-wealthy, non-economist) people, whose income comes in the form of money (wages) or money (SS and other retirement funds). We’re *petrified* of inflation, and we’re more petrified when, as now, our incomes have gone down (because so many of us are un- and under-employed).
Any talk of inflation, for us regular people, translates to making the little we’ve managed to hold on to worth even less. For us to be sanguine about even 3% inflation would require us to be sanguine about the prospect of wages and employment going up.
From your POV as an economically secure economist, this may translate to our fear of the lag time between when inflation starts to press on the wealthy and when they free up their resources. From my POV as a regular person, this fear is perfectly justified — I assume the wealthy will resist, with all their great economic and political power, doing anything that reduces that power.
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