Inflation is largely perceived to be a dirty word -- but, says Rich Barlow, attitudes are changing. In this photo, balloons at an Oakland, Calif., Walmart advertise sale prices to shoppers on Thursday, Nov. 24, 2011. (Noah Berger/AP)

An acquaintance lost her job as a nonprofit fundraiser more than a year ago. Today, despite lots of job-searching, she works a low-paying, part-time shift behind the jewelry counter at her local Macy’s. Her plight is hardly unique; she’s lucky compared to those who’ve been unemployed as long as she’s been underemployed.

America’s rate of long-term jobless — those who’ve been out of work six months or more — is the highest in years. Thirty-eight percent of all the unemployed fall into this category of the long-ago laid off.

Which leads to an obvious conclusion: What this country needs is higher prices.

Some economists believe some modest, sustained inflation is just the tonic for our global recessionary hangover.

That’s no typo. Some serious people believe a modest, sustained inflation is just the tonic for our global recessionary hangover, starting with Japan’s new prime minister. After winning last fall, Shinzo Abe has pursued a campaign promise to expand the money supply and trigger higher prices. The markets have applauded: the Nikkei stock index has been galloping, while lenders are rewarding Japan with low interest demands.

Unlike Abe, we don’t have to combat deflation, a cripplingly relentless plunge in prices. But we have another problem: government spending, one tried-and-true antidote to past recessions, appears to be off the table in deficit-fixated, sequester-saddled Washington.

Meanwhile, cheerleaders for unleashing modest inflation have run the gamut from liberal economist Paul Krugman to former George W. Bush adviser N. Gregory Mankiw, now at Harvard. Specifically, they’ve proposed that the Federal Reserve announce, loudly and clearly, that it will up its current inflation target of 2 percent to, say, 4 or 5 percent. Economics and history suggest it might work.

First, the economics: The advocates say that consumers’ reluctance to spend, which businesses have blamed for their sluggish hiring, could be overcome if shoppers expected higher prices. Some who could afford a little spending would be more likely to reach for their wallets if they knew that that laptop they’ve coveted will only be more expensive next year. Higher inflation would have another stimulative punch, as workers who receive automatic cost-of-living raises would see nominally larger paychecks, and some would feel richer and more spendthrift, even if they weren’t wealthier in real terms.

And what does history have to say? Inflation helped slay both the Great Depression (our worst ever) and the runner-up for worst economic calamity, the depression of the 1890s. Franklin Roosevelt called for higher prices to fight the deflation of the 1930s, and backed up his words by outlawing private ownership of gold, which relaxed our then official gold standard. (By tying the supply of money to the nation’s supply of gold, the standard was choking off needed growth in the monetary base.) The gold standard was even more revered orthodoxy during the 1890s depression. A series of gold strikes and improved refining late in the decade dumped shiploads of the precious stuff on the economy. The printing presses turned on, leading to more money, higher prices, and a return to prosperity.

Inflation helped slay both the Great Depression (our worst ever) and the runner-up for worst economic calamity, the depression of the 1890s.

Admittedly, this would not be a painless cure. While many people could manage an extra four or five cents on the dollar at the store, some lower-wage folks would struggle. Inflation also whacks the value of savings for those of us preparing for retirement or our kids’ education. But we’re already getting whacked: The Fed is keeping interest rates low, and has promised to do so for at least another two years, to avoid kicking the economy when it’s down. And if it’s low earners and savers we’re concerned about, how about those whose earnings and savings are at or near zero, either from unemployment or underemployment?

Fears of a return to the relentless price spikes of the Jimmy Carter years, says Krugman, overlook that a depressed economy like our current one can print money with more impunity. In fact, Paul Ryan, Mitt Romney’s ex-running mate, predicted that the Fed’s already lax monetary policy was flirting with runaway inflation. That was two years ago, and Ryan’s still waiting for his catastrophe.

There are actually just two impediments — one potential, one sadly real — to this strategy. The first, via Krugman, is that as responsible, buttoned-down bankers, the Fed lacks credibility to keep inflation going, and the public won’t go on that buying binge. (The Fed has been pursuing an easy money policy by other means; it helped stave off another Great Depression, but it has hardly turbo-charged the recovery.) The second reason is that if our politicians can’t even agree to spend us out of this mess, they’ve hardly got the spine for a little inflation.

Meanwhile, my acquaintance still works the jewelry counter, in what passes for a lucky break these days.


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  • idea

    this isn’t work of a journalist but rather a paid shyster.

  • aa9999

    This essay is filled with so many falsehoods I am tempted to just ignore it. It bases it’s argument on 2 false premises.

    The statement that inflation is currently low and not a problem is false. The CPI is a sham. There are costs for living not reflected in the old model for tracking inflation. Just one example is the extra fee charged for nearly any service provided by local, state and federal governments and businesses. Want to renew your driver’s license? Pay a fee. Apply for a building permit? Pay a fee. Bus your child to school? Pay a fee. This is happening in private business as well. Want to upgrade your cell-phone coverage? Pay a fee. Think about all the extra fees that are paid on a daily basis. In addition, anyone going to the grocery store will notice a steady increase in the price per unit of food. Try and find a half gallon of ice cream anywhere. The inflation rate is supposed to track the price of basis goods and services. Anyone who thinks it’s not growing is delusional.

    The second falsehood is that we need to increase consumer spending at all costs. The reliance on spending, and not income, is what will ultimately cause us trouble. Increased spending for several years has been linked to the rise in available credit, not more income. Of course business wants us to spend more. They get the money from the credit card company. It’s the consumer stuck with the bill to pay.

    He does get one thing right. The problem is joblessness. And the root of that problem is the moving of millions of jobs away from the US to low-cost foreign labor markets. Hopefully soon, the cost of goods and services produced here in the US will be less than those produced oversees.

    Want to really solve the problem. Pay a little more for local goods and services and don’t send our US money to China.

  • Wake The _ _ _ _ Up

    Give me a break the bank owned rockefeller world is playing us all for fools when is the so-called-media going to do their job and address this. All media in the world in now a tool of the rockefeller federal reserve con game. You are all sell outs. Shame on all news media pawns.

  • ThirdWayForward

    We need more jobs (lower unemployment) and higher wages that will have inflation as a by-product, but inflation itself is not a positive goal. When wages are stagnant and people are looking for work, inflation just makes everything more expensive, reducing the quality of life. We see our health insurance, food, and cable TV bills steadily increasing, but our salaries are not increasing commensurately. Inflation itself does not give most workers more bargaining power.

    There are ways of stimulating demand from the bottom up, and this is what we need. Again, inflation is a byproduct, not a goal.

    Does an increase in the money supply mean an increase in government spending that actually puts more money in the hands of everyone, as opposed to disproportionately channeling it into the coffers of the well-to-do?

    We socialized the debt associated with stabilizing the economy — the burden of repaying that debt should be split between Income and Wealth more equitably — our system taxes income but leaves wealth untouched. A 2-3% tax on wealth above $10 million in assets would have the same effect as a comparable inflation rate, but it would be targeted at those few who own most of America, who are now sitting on huge piles of idle money. It would have the beneficial side effect of gradually eroding the power of our financial aristocracy.

    • Stan Frymann

      If you owe 14 trillion dollars that you can never hope to repay, inflation is a positive goal. If you are the world’s greatest debtor nation, inflation is a positive goal.

  • ThirdWayForward

    In response to Stan Frymann below (reply posting does not seem to work),

    Good point. We agree that inflation does reduce the real value of debts, but this is only a good thing for debtors if the debtors are being paid proportionately more as inflation increases prices. Labor is not in a position now, nor in the foreseeable future to ask for wage increases.

    But even a $14 trillion debt is not insurmountable.

    To put it in perspective, $14 trillion is roughly the size of our annual GDP, so it is like owing a debt commensurate with one’s annual income. Many of us have houses that have mortgages of several times our annual income.

    The total valuation of wealth in the US is on the order of $120 trillion (2008 UN estimate, wikipedia), so our collective debt is on the order of 10% of our net worth as a nation. The top 5% own about a third of the wealth of the US, and the next 5% own another 20%, so a 1%/year wealth tax on the top 10% of wealth ($~60 trillion) would pay off the national debt in roughly 20 years. They can certainly afford it with no significant change in lifestyle. An across the board wealth tax of 1% on everyone would pay it off in a little over a decade, and this does not take into account any growth in the economy.

    The problem, of course, is that the rich will never accept the principle that responsibility for the debt should be apportioned in terms of wealth rather than income. They don’t want to pay for the infrastructure and economic guarantees that made and currently secure their wealth. We have a hard time just trying to fend off Republican attempts to make the burden fall disproportionately onto the backs of lower and middle classes.

    • X-Ray

      The National Debt is really past 16 Tillion dollars, is foreacst to add one Trillion dollars every year in the foreseeable future and there is no reasonable plan to cut back on the deficit. We must stop spending like a drunken sailor; our future is morgaged beyond hope of bringing it under control.

  • X-Ray

    It been some time since I taken graduate level economics courses, but I don’t
    think the principles have changed. Inflation is evil and has little to recommend
    it. It increases the cost of everything, including interest, makes planning more
    difficult, is deadly to those on fixed income such as retirees, decreases our
    exports to countries which have lower inflation, and is generally poor policy
    resulting in an upward cost spiral. The few areas where an positive argument can
    be made for inflation, as mentioned in the article, is really specious and
    transitory and an excuse for poor economic control and equilibrium.

  • David Carlson

    I got five sentences into this article and already was bored with the idea that instead of fixing the root problem, which is our tax code and an underpaid, under employed who can’t make the rent check at a low wage job, you think that it’s best to allow a private, federal reserve, to up the price of goods that are already out of the reach of a large group of American’s.

    The best movement forward would be to create a progressive tax that favors small business, while increasing the minimum wage to $15, which is a liveable wage, not a poverty wage, fixing our tax loopholes the the extremely wealthy actually pay their fare share.