Will Higher Inflation Help the Economy?

The New York Times’ Eduardo Porter has a column in yesterday’s paper “Making the Case for a Rise in Inflation”, arguing that a 4% inflation rate, for example, would be a better target rate for the Federal Reserve than its present 2% target rate.   The idea is that higher inflation would lessen the value of a dollar, thereby eating away at our $12 trillion in public debt (on which we pay interest).  A lower value of the dollar would also boost the economy by making exports less expensive.  Higher inflation would likewise encourage consumers to spend more because the value of the dollar is decreasing more rapidly.
Mr. Porter does point out that there would be opposition to any policy of purposely letting inflation go up.  The best known Fed Chair in recent years, Paul Volcker, says that “All experience amply demonstrates that inflation, when fairly and deliberately started, is hard to control and reverse”.
The biggest problem, though, is the risky procedure of trying to boost the economy with monetary policy (quantitative easing, QE1, QE2 and QE3) rather than using fiscal policy (tax reform and deregulation).  The creation of an enormous amount of new money in a slow recovery creates huge upward pressure on inflation.  The economy is slowly improving on its own accord.  Very soon (in the next few years) the Fed will have to perform the difficult function of withdrawing money from the system fast enough to avoid inflation and, at the same time, slow enough, to keep interest rates from skyrocketing.  So the question is, will the Fed be able to simultaneously keep both inflation and interest rates under some kind of control?
For sure we don’t want to make its job more difficult by pushing inflation any higher than necessary at the present time!

4 thoughts on “Will Higher Inflation Help the Economy?

  1. Thanks for your encouragement and support. I think that I have a very clear, consistent and really just common sense point of view and this is the foundation of my enthusiasm and passion about what I say. Naturally I am pleased when others agree with me or express similar views. For example, in my June 22nd post, “Is America in decline?”, I quote the authors Glenn Hubbard and Tim Kane that “America’s existential threat is fiscal”. They are exactly right and I am pleased to share their sentiment with others like yourself.

  2. Wow, awesome blog layout! How long have you been blogging for?
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  3. Thanks for your kind words. The main requirement for successful blogging is to have a clear message in which you strongly believe. Prior technical experience is not required. Get some help if necessary to sets things up and you’re on your way!

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