The Crack Theory of Inflation
By Arnold Kling
NPR lets John Taylor make the case against easier money and higher inflation.
He says encouraging inflation is a slippery slope. A central bank may just want to raise inflation moderately, but he says, it inevitably gets translated into higher inflation for longer periods. That’s partly because pushing inflation down can cause economic pain, so people resist it.
So, the theory is that inflation is like crack. Take a little of it, and you’ll soon become crazy and hooked, and then the withdrawal will be painful.
Point noted, but it’s more difficult to make the case that nominal GDP is like crack. So I still favor giving a Sumnerian monetary expansion a try. However, unlike Rogoff, I would shut the experiment down if we were getting 5 percent inflation instead of better real growth.