What the U.S. economy may need is a dose of good old-fashioned inflation.This falls into the OMG category of policy prescriptions. Note that what they really are advocating is the repudiation of debt via monetary debasement. Now, when you and I receive debased products, such as lower-quality food and other goods, we don't like it and believe we are being cheated.
So say economists including Gregory Mankiw, former White House adviser, and Kenneth Rogoff, who was chief economist at the International Monetary Fund. They argue that a looser rein on inflation would make it easier for debt-strapped consumers and governments to meet their obligations. It might also help the economy by encouraging Americans to spend now rather than later when prices go up.
“I’m advocating 6 percent inflation for at least a couple of years,” says Rogoff, 56, who’s now a professor at Harvard University. “It would ameliorate the debt bomb and help us work through the deleveraging process.”
However, now the Great Minds of the Ivy League are claiming that if we do the same thing to money, we will have prosperity. Somehow, I think we are dealing with an economic non sequitur, not that it matters at the Ivies.
Makiw and Ben Bernanke claim that the Great Enemy is deflation:
For the moment, the Fed’s focus is on preventing deflation -- a potentially debilitating drop in prices and wages that makes debts harder to repay and encourages the postponement of purchases. The Labor Department reported May 15 that consumer prices were unchanged in April from the previous month and were down 0.7 percent from a year earlier.
“We are currently being very aggressive because we are trying to avoid” deflation, Fed Chairman Ben S. Bernanke told an Atlanta Fed conference on May 11.
Keep in mind that deflation is nothing more than money regaining previously lost value and the re-aligning of the economic fundamentals into lines of sustainable production. What Bernanke and company are saying is that they are going to do everything they can to prevent economic recover -- all in the name of putting the economy back on the road to recovery.
This is not economics, folks. It is madness.
(Hat tip to Matt Moselle)