Sunday, November 16, 2014

Rooting for inflation?



From VOX: The NAIRU, explained: why economists don't want unemployment to drop too low by Matthew Yglesias:
A middle ground would be to argue that perhaps the NAIRU did correctly characterize the economy of the 1970s. Back then, after all, a large share of the American workforce was represented by labor unions. Union contracts often included clauses that provided for automatic raises in the case of inflation. It's easy to see why any particular person would love to have such a clause in his contract. But it's also easy to see how widespread use of such clauses could inadvertently set off a spiral. Whether or not this was the case three or four decades ago, it's not a major issue in the American economy today, when many fewer workers have such contracts.

That's the whole paragraph. Here's the piece of it that's relevant for today's post:

It's not a major issue in the American economy today,
when many fewer workers have such contracts.

If you're thinking a little more inflation would help reduce our debt, you might want to think about whether your paycheck would be seeing that inflation. Debt doesn't inflate when wages inflate, so inflation can be helpful (though I do not favor that solution). But if prices inflate and wages do not, increasing inflation will leave us in worse shape than we're in now.

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