Steve Forbes explains in the latest Forbes magazine why it makes little sense for so many prominent economists to push policies that point toward more price inflation.
Money is a measure of value, just as inches and minutes are measures of length and time. Money facilitates transactions–buying and selling–between willing parties. It’s a claim on products and services, and it’s infinitely less cumbersome than barter. Changing the intrinsic value of money no more leads to sustainable growth than would changing the number of minutes in an hour or how many inches constitute a foot.
John Maynard Keynes rightly labeled inflation as a form of taxation, and a particularly invidious one. It arbitrarily produces winners and losers, with no concern for effort and reward or for meeting the needs and wants of customers. It rewards speculation rather than such traditional ways of getting ahead as hard work, saving and innovating, thereby undermining social trust and demoralizing a society.
Nevertheless, central bankers like Ben Bernanke and his putative successor, Janet Yellen, claim we need more inflation, preferably an annual rate of 2% to 2.5%. That level would cost a family making $40,000 annually an extra $800 to $1,000 a year in higher prices. If you ever run across a central banker or an economist who shares this weird view, ask that person which elected body gave the Fed–or any other central bank–the authority to impose such a tax.
In the early part of the last decade the Federal Reserve and the U.S. Treasury Department instituted a weak-dollar policy, which led to the housing bubble, the boom in commodities, the inflation in farmland prices, hothouse growth in the financial sector and a bubble in bonds–and, perhaps, stocks. But just as many doctors in the mid-19th century fiercely resisted Lister’s germ theory by refusing to wash their hands before surgeries, these policymakers remain wedded to their malignant theories.
