It’s hard to overstate the importance of keeping money sloshing around in the system. There is a short, but enourmously impactful list of benefits of higher inflation which are not part of the day to day discussion on inflation, and not really part of the professional discussion either.
One incredibly important benefit to higher inflation is the amount of money sloshing around in the economy. It’s usually higher than during times of deflation, or even normal low inflation times. It’s easier to borrow money, and easier to get people to equity fund ventures.
Sounds terrible if you are a dried up prune of a person who likes punishing minor infractions with whippings.
However, what happens during those monetarily loose times is crazy ideas get funded. And some of those ideas turn out to be not crazy. The payoff from an good idea is permanent and has a long, long tail of usefulness to humans.
The industrial revolution was so important to the world. It’s so important. What was the inflation rate during the industrial revolution in the UK?
Crazy! Crazy high and low! 10% inflation was experienced many, many years! This is during a time when the *real* prices of basic goods like clothes and food *had* to be falling rapidly year after year.
Part of the reason the industrial revolution happened was there was plenty of money sloshing around in the system, due to inflation and insanely high national debt for England – and of course their Current Account policy driven by Colonialism.
The thread making process isn’t that much different today than it was back when spinsters were doing it. We just have machines doing it now, many hundreds of times faster and more precisely. But at the time of its invention, people were genuinely skeptical the new threadmaking process was better. The payoff from some crazy person funding a crazy new technology to make thread has been gigantic for humans.
But funding crazy projects does not happen during times of austerity. The economy wasn’t really all that bad in 2010. But ask anyone in the U.S. if their company was really pushing technology improvements in 2010, and you’ll get a handful of people out in San Fran.
One driver of austerity is fear of inflation if we cure the austerity. Did we miss out on innovations in 2010? Yes, certainly. And part of that was due to our infatuation with keeping inflation low. We may have delayed self-driving cars by a full 2 years – we don’t know. We may have missed some incredible new technology entirely.
Always remember Graphene was discovered by some guys playing around with clear tape and pencils, just fucking around, wasting time. They should have been working on something productive, but they were not.
“Geim has a knack for quirky yet significant research subjects. He made headlines in 1997 when he used a magnetic field to levitate a frog, garnering him an Ig Nobel Prize in 2000. He once co-authored a paper with his favorite hamster, “Detection of earth rotation with a diamagnetically levitating gyroscope,” insisting that “H. A. M. S. ter Tisha” contributed to the levitation experiment “most directly.” (According to Wikipedia the hamster later applied for a PhD at the University of Nijmegen.) And in 2007 his laboratory developed a microfabricated adhesive mimicking a gecko lizard’s sticky footpads.”
Who paid for this bullshit? What a colossal waste of money!
And we got Graphene. The net long term benefit to humanity for graphene? Easily millions, and perhaps billions of times what we paid him for wasting time levitating frogs. Note he did the gecko sticky footpads after he did Graphene, so he’s still wasting time and money.
This crazy stuff does not get funded when times are tight. Low inflation targets help to create tight times.