Time ran a January 11 article, Why Economists are Rooting for Inflation by Stephen Gandel. The article presented the benefits of increasing inflation as argued for by American economists Menzie Chinn and Jeffrey Frieden.
inflation would shrink the value of debts both the government and borrowers have to pay by improving (the) collective balance sheets. Higher salaries would also make it easier for borrowers to pay back their loans, helping banks. Inflation pushes people and companies to spend money. So increasing inflation could stimulate the economy as well as lower debts
But this is exactly the point where market economy values clash with that of social justice’, because market economics is presupposed on capital ownership, meaning only those with capital are able to participate in the system.
Who are those without capital? The poor: without property, unskilled, without marketable knowledge.
The poor, being outsiders of the formal economic system, don’t hemorrhage in the way capitalists in times of financial crises do but are nevertheless caught in helplessness in their inability to spend, regardless of economic highs and lows. In good and bad times, they are without significant purchasing power because heck they can’t even buy basic stuff. While capitalists or those with considerable incomes spend (or save) based on an array of options, the poor don’t have a choice but to spend their only peso.
Increasing inflation will do good to the economy only if there are no poor. The caveat – “all things being equal” – taught in Econ 101 isn’t often mentioned by economists when dishing out expert advice. Context makes a huge difference.
In a short course on globalization one summer, a lecturer said the market has a life of its own, following the trail of capital and money and nothing else, and there’s virtually nothing that could be done to reverse it. This got me rumbling in my corner. My view is, institutions and systems, the market being one, are made up of living things and these living things happen to have the highest capacity for intelligent thinking than the other living species. If humans so want it, we could re-wire the system. To say that the market is greater than its creator is to say that Frankenstein is a true story.
Take the worldwide web now. For a time the alleged monster was given free range of the virtual world and it is only recently that governments are putting in stops to what it can do in that space.
Bottomline is, humans are in control.
I believe we’re through with the era of the economic model geared at capitalists. I feel that the troubles of the old model have made nations desirous and ripe for a more equitable model, one which gets the poor to participate instead of leaving them out. This is the challenge for today’s economists and strategists.