Skip to comments.Is Inflation Good?
Posted on 11/25/2011 5:47:24 PM PST by Chuckmorse
A mild inflation, a slightly larger volume of currency inthe economy than the amount needed for transactions and investment, is betterthan deflation which is when there is less currency in the economy than what isrequired. A slightly inflated dollar is an optimistic statement which says thatthings are going to get better and that slightly more money is available forspending, borrowing and investing. Yet such inflation only works if it is anatural byproduct of bullish spending and investing.
There are three means in which the dollar can be inflated. Whileone of those means is good and healthy, the other two are bad and artificial.Good inflation occurs from the bottom up and is a reflection of genuine needfor money in order to keep up with production and demand. Such inflationreflects both production and an optimistic projection of growth and, as such,the slightly inflated dollar soon finds an equilibrium as the economy grows.
Bad inflation occurs when the government either prints moneyto pay for its budget or borrows money to stimulate or prop up the economy.When the government prints money, what the Federal Reserve calls monetizing debtthe workingmans dollar is robbed of its value. The artificially inflateddollar thus becomes worth 90 cents, or 80 cents depending on how many fistdollars are pumped into the economy. The cost of business and privatetransactions thus must go up in order to make up for the devalued dollar.Prices go up and this hurts people on fixed incomes. This form of inflation isa back-door tax that particularly comes down heavy on the middle class and thepoor. The new paper dollars do not reflect an improvement in production or anincrease in demand.
The other form of bad inflation is stimulus borrowing whichwas the approach of the Obama Administration and several other previousadministrations. This involves borrowing money from the banks and privateinvestors, money that has to be eventually paid back at interest with taxpayerdollars, and then spending that money into the economy. While this has some simulativeeffect, the money borrowed is controlled by the government that authorizes theborrowing and it is thus doled out to friends, those who would perpetrate the governmentspower by creating beholden allies through money. This is exactly how the ObamaAdministration used the almost trillion dollars they borrowed in 2009, debtknown as the stimulus package.
The more natural approach to a stimulus would be to place amoratorium on taxes or to cut taxes. This approach would be better thanstimulating the economy with either borrowed money, which enhances the power ofthe government and creates debts that will eventually become due, or turning onthe printing press and devaluing the workingmans dollar and debauching savings.Leaving more money in the hands of those who create capital, or own capital,through tax deduction would result in more available dollars and the mildlyinflationary stimulation the economy needs. Business, knowing that taxes wouldnot be going up, would be more inclined to spend and invest rather than toshelter their profits. Such spending and investment would lead to economicexpansion, jobs, and greater prosperity at all levels.
Yet how could this be done while maintaining all thefunctions of government that we have come to expect? For starters, we shoulddemand that Congress pass a balanced budget amendment that would then beratified by the states. A national balanced budget, the same that presentlyexists in over 20 states, would force the government to make the necessarycuts. Does anyone doubt that every agency of government, including defense,could immediately cut their budget by at least 5% without affecting basic services?
The President should be given the line item veto which wouldmean that the executive would be in a position to cut out pork-barrel spendingwhen it is larded into congressional bills. This would force Congress to voteon spending as a stand-alone and out in the open. This would also mean that thePresident would be held directly accountable for signing specific spending bills.
In order to further stimulate the economy, Congress shouldhold the line on approving any new taxes, cut capital gains, and offer a moratoriumon overseas corporate profits. Regulations should be enacted to make it easierfor businesses at all levels to offer their goods and services whileregulations protecting the environment should be left in place. Public policyshould be oriented toward encouraging savings as opposed to debt and towardprivate capital creation and accumulation as opposed to government transfer of wealth.
Is inflation good? No. Especially not when wages are stagnant and bank CDs barely earn 2% for 5 years.
Raising wages follow mild inflation....normally which is a good thing
But to be frank......I think we are in unknown territory with our current situation being the country is being run by a bunch of Marxist Bastards
Actually, that's exactly backwards. A slight deflation is better because it protects savers rather than rewarding borrowers. This places a natural control on debt-expansion, which always ends badly as we shall soon realize.
But, that's exactly why we don't have slight deflation...
Rising wages does follow inflation but only in nominal values. Actual value of wages continually decreases with an inflation until strikes and unrest cause wages to jump then they decrease with the inflation again. It makes for continued unease with incomes because even though you don’t buy any more stuff than you have in the past it is harder and harder to buy that same stuff. In an inflation, which causes prices to rise nominally, wages are the last prices to rise. The wage earner always stays behind the curve. That annual “raise is nothing but a usually-not-quite catchup with inflation and the time between raises is continual loss. The catchup may put you even in weekly pay with the economy but the loss you have experienced is never made up.
“Is Inflation Good?”
It worked for me. Signed, Robert Mugabe, Zimbabwe
Inflation is theft.
Not this time, Kimosabee. We already have inflation. We have no growth. It might be a capital strike. It might be uncertainty. It might be government over regulation. Wait a minute! It’s all of it. We have no growth.
When Obama said he prefered to spread the wealth around, I felt he would do it through inflation.
Ever wonder why there aren’t that many wealth taxes, other than property taxes. Well inflation is a massive wealth tax, especially on the middle class.
The upper classes own property and businesses which grow in value with inflation, the middle class generally holds much of their wealth in dollar denominated assets.
As Friedman and Schwartz demonstrated in their Monetary History of the United States, we have had long periods of deflation coupled with robust growth.
With honest money one would expect deflation as productivity increases.
It’s great if you’re in debt (in dollars) up to your eyeballs. If, for example, the value of the dollar is cut in half, then so is the real value of all your indebtedness. Conversely, the banks (or people, institutions, government, whatever) that you owe the dolars to are screwed. THAT’s why the Fed will do whatever it has to do to check inflation.
On the other hand, if you have lots and lots of dollars SAVED, then inflation will most definitely NOT be good for you.
BUMP what somebody else said. Nice work publishing your whole column here.
No kidding. They have finally taken control of the country.
We are committing suicide.
Yes of course it is didnt obama say to inflate your tires to save money. /obazm off
There is no reason inflation is good. It is a measure of the theft of savings. There is no reason normal deflation shouldn’t exist if society were actually producing more with time.
This ‘inflation is good’ meme is always stated without proof cause there isn’t any. It is pure theft.
Let’s restate the question:
Is government theft via debasement of the currency good?
it is until it isn’t, you might say.
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