Goodhart sighting? Misunderstanding of causality sighting? Check out this recent economic analysis on Slate.com (emphasis added):
For much of the modern American era, inflation has been viewed as an evil demon to be exorcised, ideally before it even rears its head. This makes sense: Inflation robs people of their savings, and the many Americans who have lived through periods of double-digit inflation know how miserable it is. But sometimes a little bit of inflation is valuable. During the Great Depression, government policies deliberately tried to create inflation. Rising prices are a sign of rising output, something that would be welcome in the current slow-motion recovery.
(He then quotes an economist that says inflation would also prop up home values and prevent foreclosures.)
Did I get that right? Because inflation has traditionally been a sign of (caused by) rising output, you should directly cause inflation, in order to cause higher output. (Note: in order to complete the case for inflation, you arguably have to do the same thing again, but replacing inflation with output, and output with reduced unemployment.)
A usual, I’m not trying to start a political debate about whether inflation is good or bad, or what should be done to increase/decrease inflation. I’m interested in this particular way of arguing for pro-inflation policies, which seems to even recognize which way the causality flows, but still argue as if it runs the opposite direction.
It’s possible—the next sentence after your quotation reads:
As economist Casey Mulligan has argued, some inflation right now could have some salutary effects: “Specifically, inflation would raise prices of homes, among other things. Higher housing prices would pull a number of mortgages out from under water … and thereby reduce the number of foreclosures.”
...which is at least a causal mechanism that would go the correct direction. That said, the part you quoted sounds pretty bad.
but that seems to miss the whole point of depressions: over inflation Has to lead to deflation or X, and X is bad (angry masses, civil unrest, collapsed government, large scale wars etc). not many people have much money to begin with, and we should raise prices of homes and whatnot? people who have foreclosed Need to foreclose, just like companies that go broke Need to-the bailouts were a huge mistake- or else your financial model is broken and you actually want to support net negative behavior in the economy.
now, I’m no economics major, but I don’t that degree to know this:
in a nutshell, if you have an asset-house for eg.-and it’s market price is 100k but it and all the other houses in the area are being sold @ 500k and someone-most people anyway-actually buys that house by borrowing money they can never hope to pay back with interest in any reasonable amount of time, then that house’s price simply Has to go down or else you have X.
how does ‘increasing inflation’ solve the fundamental problem of there being no more wealth to pa for anything with? the US has simply borrowed more than it can pay back for decades if ever, inflation will only cause matters to worsen to improve.
yes all governments have debt and survive, and a government having zero debt is unlikely to happen anytime soon, but that’s fine as long as the debt is manageable, and it might seem like that if we take ‘official’ reports of the Outstanding Public Debt being around $13.3 Trillion, even though that’s pretty bad, we’d just need tighter purse strings and some measures here and there and in a few decades it’ll be mostly payed off, but unfortunately that’s not going to happen.
Factor in the remaining ‘unfunded liabilities’ ie. the benefits-money- promised by government to the elderly, sick, unemployed and so on-social security et all- and our debt is over $60 Trillion, each citizen’s burden of an equal share amounts to around a quarter million $US.
put raising inflation deliberately in such a context and you’ll see how pretty bad it all actually is.
Goodhart sighting? Misunderstanding of causality sighting? Check out this recent economic analysis on Slate.com (emphasis added):
(He then quotes an economist that says inflation would also prop up home values and prevent foreclosures.)
Did I get that right? Because inflation has traditionally been a sign of (caused by) rising output, you should directly cause inflation, in order to cause higher output. (Note: in order to complete the case for inflation, you arguably have to do the same thing again, but replacing inflation with output, and output with reduced unemployment.)
A usual, I’m not trying to start a political debate about whether inflation is good or bad, or what should be done to increase/decrease inflation. I’m interested in this particular way of arguing for pro-inflation policies, which seems to even recognize which way the causality flows, but still argue as if it runs the opposite direction.
Am I misunderstanding it?
LW Goodhart article
It’s possible—the next sentence after your quotation reads:
...which is at least a causal mechanism that would go the correct direction. That said, the part you quoted sounds pretty bad.
but that seems to miss the whole point of depressions: over inflation Has to lead to deflation or X, and X is bad (angry masses, civil unrest, collapsed government, large scale wars etc). not many people have much money to begin with, and we should raise prices of homes and whatnot? people who have foreclosed Need to foreclose, just like companies that go broke Need to-the bailouts were a huge mistake- or else your financial model is broken and you actually want to support net negative behavior in the economy.
now, I’m no economics major, but I don’t that degree to know this: in a nutshell, if you have an asset-house for eg.-and it’s market price is 100k but it and all the other houses in the area are being sold @ 500k and someone-most people anyway-actually buys that house by borrowing money they can never hope to pay back with interest in any reasonable amount of time, then that house’s price simply Has to go down or else you have X.
how does ‘increasing inflation’ solve the fundamental problem of there being no more wealth to pa for anything with? the US has simply borrowed more than it can pay back for decades if ever, inflation will only cause matters to worsen to improve.
yes all governments have debt and survive, and a government having zero debt is unlikely to happen anytime soon, but that’s fine as long as the debt is manageable, and it might seem like that if we take ‘official’ reports of the Outstanding Public Debt being around $13.3 Trillion, even though that’s pretty bad, we’d just need tighter purse strings and some measures here and there and in a few decades it’ll be mostly payed off, but unfortunately that’s not going to happen.
Factor in the remaining ‘unfunded liabilities’ ie. the benefits-money- promised by government to the elderly, sick, unemployed and so on-social security et all- and our debt is over $60 Trillion, each citizen’s burden of an equal share amounts to around a quarter million $US.
put raising inflation deliberately in such a context and you’ll see how pretty bad it all actually is.
I know this is strong language from a non economist, but again, this is not such a hard thing to grok, see http://communities.washingtontimes.com/neighborhood/stimulus/2010/jun/30/forgive-us-our-debts/ or http://cynicuseconomicus.blogspot.com/2008/09/banking-bailout-why-will-help-bankrupt.html