Courtesy of Mish.
Bloomberg writer Caroline Baum pinged me with her latest article Ivory Tower Types Fall for Bigger Inflation Fix complete with a veritable “Who’s Who” of inflation proponents.
Inflation Proponents
- Kenneth Rogoff – Harvard University economist
- Greg Mankiw – Harvard professor
- Olivier Blanchard – IMF Chief Economist
- Noah Smith – Economist author of the “Not Quite Noahpinion” blog
The biggest missing entry was Paul Krugman.
Harvard economist Kenneth Blanchard says “the benefits of a 4 percent inflation target might outweigh the costs”
Rogoff goes even further, recommending “a short burst of moderate inflation” — two years of 6 percent inflation — would speed the deleveraging process.”
Mankiw emailed Baum “Think of it as the Fed announcing it will keep future short rates lower, for any given inflation rate, than it otherwise would have”
Baum offered a series of pertinent rebuttals:
“If a 6 percent inflation target would accelerate the deleveraging process, why stop there? Why not 8 percent? Or 10 percent? Wouldn’t that speed the process? You get the point.”
“In theory, Mankiw is right. Ceteris paribus — Latin for with other things equal. But other things aren’t equal; they never are.”
“In the real world, bond investors are going to look at 6 percent inflation and project 8 percent or 10 percent. Nominal bond yields will rise to incorporate higher inflation expectations. Real yields might not rise, but it’s unlikely they would fall. And long-term rates are what matter for capital investment, which is key to increasing the economy’s growth potential and raising productivity.”
What Baum Left Out
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