NEW YORK TIMES Column: …The prescription fits the worldview of some “monetarist” economists, who argue that the Fed should set a higher target for the nominal gross domestic product, to be met through real economic growth and inflation. Conservative pundits like Josh Barro of Business Insider have welcomed inflation as the right’s answer to fiscal stimulus — a way to juice the economy without increasing government spending.
But it is hardly a conservative idea. Paul Krugman, a Nobel laureate and liberal columnist for The New York Times, has been writing about the benefits of higher inflation, arguing that policy makers should be using any available tool — fiscal or monetary — to try to reduce an unemployment rate stubbornly stuck at more than 7.5 percent for over four years…
One main feature of inflation is that it reduces the real value of debt. Think of the $13 trillion in outstanding mortgages or the $12 trillion in government debt held by the public. Inflation would eat away at those obligations, without any need for bankruptcy lawyers. And it would leave more disposable income for Americans to spend… (more)
EDITOR: For years, we have championed the concept that a 2% ‘real’ inflation rate is necessary to gradually get the economy out from under the oppressive levels of existing consumer and sovereign debt. This is what occurred during the boom years after the Second World War to reduce the ‘real’ value of debt that as a percentage of Gross Domestic Income was much higher than today.
