Howard Covitz writes me an e-mail:
I’ve been wondering where the debate is on the merits of inflation. Sure, in the wake of the ’70’s, it became axiomatic to consider inflation a Bad Thing. But in my econ courses, an enlightened Professor took the time to point out that for borrowers, as long as COLA exists, it is a net Good Thing (please correct me if my recollection of the logic is flawed). And if nothing else, are we not a country of borrowers? Sure, hyperinflation is a risk, but moderate inflation would be most welcome to this net debtor.
Was there a time when the Economic Profession was more open to discussing the merits of inflation?
I’m kinda swamped, so I’m going to leave this one for comments except for a few thoughts:
1. Lack of liquidity can be a problem, and slightly constrained liquidity seems to me to be a worse problem than a small amount of inflation. (With a small amount of inflation (say, less than 3%, there are some winners to go with the losers, but if the economy suffers from just a bit of a liquidity constraint, there are no winners.) Hence, if the Fed has to err, better to err on the side of a bit of inflation.
2. High inflation is a huge problem with no redeeming characteristics. Regular readers know I grew up in South America in the 70s and 80s.
3. I don’t know what the dividing line is between inflation where the problems can be ignored and inflation where the problems cannot be ignored.