Inflation Phobia

     As we have looked at in previous posts, there is a lot of demonetization of inflation out there. Right now fear of inflation has hamstrung a decent policy response in the U.S. and even more so in the Euro zone. What surprises me as that I speak to liberal friends and many of them too are inflation phobes.

    http://diaryofarepublicanhater.blogspot.com/2011/10/what-is-inflation.html

    http://diaryofarepublicanhater.blogspot.com/2011/10/few-more-notes-on-inflation.html

    http://diaryofarepublicanhater.blogspot.com/2011/10/inordinate-fear-of-inflation.html

     Yesterday this annoying old guy at the library started going on in the way he does about how the cost of everything is up and this is all because of greed and profiteering-and the wicked labor unions. He a Republican-Obama is to his mind responsible for every evil in the world-but what struck me about what he says about inflation is it echos what these liberal friends I mentioned say about it.

    Apparently the idea that inflation is somehow "robbery" is very widely believed.  So to hear this old guy tell it the fact that something cost $.25 in 1960 and $5.00 today is pure theft on those who buy the product. The idea that there is the real value of goods where you can see how much a particular good or service has gone up in reality doesn't exist for him and many people.

   What we're discussing here is not what economists say though most Right wing economists have an inordinate fear of inflation. But the average person who knows little of economics takes to anti inflation hysteria like a fish to water apparently.

    If coffee cost $.05 in 1960 and $2.00 today-or whatever I don't drink coffee-I don't buy that $1.95 is pure greed of everyone who sells coffee. Then too, the cost of everything rises in time so wages too rise.  To this the old guy told me that it doesn't matter if wages go up because prices rise faster. Now this may be true a lot of the time but not always and uniformly.

    In the economy, prices may rise but different prices rise by different amounts; wages too rise at different rates across different industries. Overall it may be that overall prices rise faster than overall wages but it is not necessarily so.  It is true that over the last 30 years we have seen American incomes stagnate but that's due to the policies of his Republicans not the nefarious nature of inflation.

   If coffee goes up from $.05 to $2.00 over 50 years that isn't 100 percent profit on the extra $1.95 or a 100 percent transfer from those who buy coffee to those who sell it.

  This  ignorance of inflation means it's easy for the deflationsists to trick people. But inflation per se is not the enemy. Right now a slightly higher measure would make our lives better.