I find it very useful to question hard some of the things I think I know, and to also persuade myself that it is possible for me to support something that often-times I would be inclined to reject out of hand as being silly. Take for example the case of inflation. I know about all kinds of macro models that tell me that moderate levels of inflation can indeed be “good” in an aggregate welfare sense. But since I think macro is voodoo, I typically stop paying attention because even if the voodoo turns out to have useful truths in it, by the time we run the policy through the political sausage grinder, well, we don’t get very good tasting sausage.
So I was asking myself the other morning while in the shower (and worrying that my heating bill may be increasing due to the long, hot shower), in what cases could I be persuaded to accept higher inflation. I know, you think that’s stupid, but again, I find it to be healthy. So the way I approach such questions is to ask myself what ELSE I care about. That makes this a far easier question. You see, as an economist I am dogmatically trained to look for tradeoffs everywhere and always. And as such, even if I recognize the costs of inflation, I should be on the lookout for a tradeoff I would be willing to make in exchange for it. So, what else do I like? Well, trees, streams and mountains would be one of them.
And what does that have to do with inflation?
I’ll play not nice and make you wait until tomorrow to find out! See you then.
In an inflationary period, investors will allocate more wealth toward hard assets and hold less wealth in federal reserve notes.
This increases the incentive to buy – and preserve – assets such as streams, mountains and trees.
Maybe.