Entangled in the trap!

Binyamin Appelbaum just went through that experience. After extolling the benefits of moderate inflation on Sunday, on Monday he had to do some ‘backtracking’ in “If Prices Go Up, Incomes May Lag”:

My Sunday article about the benefits of moderate inflation drew a lot of skeptical responses, many about the premise that rising prices would lead to rising wages.

This is an old and well-established concern. “People dislike inflation because they assume that wages will not keep pace,” Robert Shiller wrote in a 1996 paper describing the results of a multinational survey.

And from that point on it gets all very confusing. For example:

To be clear, inflation by definition increases total income. Someone ends up holding the new money. The question is about distribution: Are workers able to secure the raises necessary to keep pace with inflation, or does the extra money simply pad profits?

In some cases, it is clear that incomes will not rise in the short term.

Historically, “rising prices go together with rising wages” barring moments (73/74, 79/80) of supply shocks (oil prices) that have the effect of raising the cost of living and reducing the standard of living.

Good Times

So let´s be ‘happy’ again by providing nominal stability through targeting NGDP along a level path!

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