Inflation is bad, and embracing it is even worse
Federal Reserve chairman Jerome Powell said the time has come to retire the word “transitory” when it comes to talking about inflation and instead discuss ways to tame rising prices, which will be with us for some time.
A fairly bold statement from Powell, whose Federal Reserve Board has been running well behind the price curve. But the apparent change in thinking at the Fed doesn’t mean the rest of the transitory inflation crowd will change with it. On the contrary. The new hotness there is that inflation is good for you. Randal O’Toole says this new thinking is hogwash:
If you foolishly borrowed $35,000 to get a master’s degree in puppeteering, then you might welcome inflation. The same is true if you are a transit agency that borrowed $2 billion to build light rail. But if you pay off your credit cards in full each month, rent your home, and maybe hope to buy a house someday, inflation is not your friend.
The worst part of inflation is that central banks respond to it by raising interest rates, which raises the price of housing, cars, or anything else that people buy on credit. The Intercept article claims this is an evil conspiracy by the 1 percent to keep everyone else poor. Instead, the article argues, we should just let inflation run wild. Tell that to people in Zimbabwe or Venezuela: because inflation discourages people from investing (remember that inflation hurts creditors), which leads to all sorts of shortages. The Intercept may not be advocating hyperinflation, but once started, inflation is hard to stop.
Hard to stop yes. But not impossible – if you’re willing to accept very high interest rates, high unemployment, and a recession that grinds away wealth and health. America tamed inflation in the early 1980s with such rough medicine. It’s not likely today’s crop of economic snowflakes would be able to survive it.