I was watching Consuelo Mack interview James Grant on WealthTrack, an online show. In the interview, James introduced an idea that counters the norm of most thinkers in the civilized world. He is opposed to the notion that inflation is normative. He is offended that the Federal Reserve and the Bank of Canada, by setting an inflation "target" of 3 % per year, institutionalizes an erosion of wealth.
He offers the argument that in a world with a baseline of billions of people, if you add several million more people ready to offer their hands and minds to enhance labour, creativity and technology, what should be normative is prices FALLING not rising. We go to Walmart to get "Every Day Low, and Lower, Prices" because that is what should happen.
And what about jobs? As prices fall due to technology, jobs get displaced. When electricity and the telephone were invented and put to use in society, there was a staggering loss of jobs. Those persons had to look for employment elsewhere, and they found them.
His other gems of thought were too numerous for me to record, and I will have to review the episode to process all of them.
Most economists disagree with James Grant on this matter. Why do you think he's right?
Michael Bordo, professor of economics at Rutgers University wrote:
Between 1929 and 1933, prices fell on average by 15 percent." This deflation was driven by a decline in output, demand, and credit—too little money and wages chasing too many goods and workers. The Depression-era cratering of wages and prices was disastrous because it rendered.
Joseph Gagnon, senior fellow at the Peterson Institute for International Economics wrote:
Experience shows that a rate of inflation around 2 or 3 percent helps the economy to perform at full potential with maximum sustainable employment
Daniel Gross, Slate Magazine wrote:
Borrowers with fixed-rate loans—like the government, many businesses, and homeowners—will cheer for inflation and worry about deflation. When wages and prices grow modestly each year, it's easier to stay current with existing debt. And when there's lots of unused economic capacity—shuttered factories, large numbers of unemployed people—a little inflation can be just what the doctor ordered. Continually falling prices act as a disincentive to investment and risk-taking.