If inflation is in the long run simply a nominal event, why fight it? In other words what would be theroetically wrong with an economy where prices simply grew 20% every year? Wouldn't people simply incorporate yearly 20% increases in their base pay, rent, etc? Yet this doesn't really seem to be the case, most people think high inflation over a long period of time is bad.
Perhaps the problem is that money is not really a nominal good but a real one as well. Imagine if US dollars weighed as much as a bowling ball. How many transactions would not happen because who the hell wants to carry 100 lbs down to Starbucks to get a coffee? Too little money is like too little rare earth minerals, things that should happen won't thereby inhibiting the real economy even in the long run.
Maia, love your stuff. But, speaking as someone who got an econ PhD in 1980, you overlooked the inflation episode of that era. Paul Volcker targeted the growth rate of the money supply. And it worked faster than expected because the Fed regained much of its credibility. Today, it’s fashionable to claim Volcker pushed interest rates to 20%. But that was a result of reducing the growth rate of M1. In the next few days I’m planning to dive into Fed minutes from that era. Stay tuned.
Hey Maia, hope to see you back on twitter. Damned unfair you got suspended.
If inflation is in the long run simply a nominal event, why fight it? In other words what would be theroetically wrong with an economy where prices simply grew 20% every year? Wouldn't people simply incorporate yearly 20% increases in their base pay, rent, etc? Yet this doesn't really seem to be the case, most people think high inflation over a long period of time is bad.
Perhaps the problem is that money is not really a nominal good but a real one as well. Imagine if US dollars weighed as much as a bowling ball. How many transactions would not happen because who the hell wants to carry 100 lbs down to Starbucks to get a coffee? Too little money is like too little rare earth minerals, things that should happen won't thereby inhibiting the real economy even in the long run.
Maia, an important reference would be M Friedman The Monetary theory of Nominal Income JPE 1971. Also reference to Divisia Monetary Aggregates found in https://centerforfinancialstability.org/amfm_data.php
Maia, love your stuff. But, speaking as someone who got an econ PhD in 1980, you overlooked the inflation episode of that era. Paul Volcker targeted the growth rate of the money supply. And it worked faster than expected because the Fed regained much of its credibility. Today, it’s fashionable to claim Volcker pushed interest rates to 20%. But that was a result of reducing the growth rate of M1. In the next few days I’m planning to dive into Fed minutes from that era. Stay tuned.