Sunday, August 12, 2018

Brian Romanchuk — Why Is A Positive Inflation Rate A Good Thing?

One of the questions that often comes up in economic discussions is: why is a positive inflation rate seen as a good thing? There are a few angles to this question, which makes it somewhat more complex. I am somewhat ambivalent on the subject, but I believe the best answer lies in the area of political economy, not economic theory.…
Bond Economics
Why Is A Positive Inflation Rate A Good Thing?Brian Romanchuk

1 comment:

Ralph Musgrave said...

One reason it's desirable is that having the wage for different skills vary with respect for each other in response to supply and demand is desirable, but as Keynes said "wages are sticky downwards", i.e. wages cannot be cut in heavily unionised sectors.

Ergo the only way of adjusting relative wages, is to have the wage for some professions rise, while others stay static for a while. That tends to make some inflation inevitable.

I'm not sure that's a foolproof argument, but it's a point of sorts.