“Inflation helps debtors and spenders at the expense of creditors and savers.”
There’s an argument to be made that inflation—or at least a reasonable increase in our current level of inflation—will help the economy. How? Inflation does two things: 1) It makes your money you have less valuable as times goes past—and so there’s more reason to spend it now, which helps the economy. And 2) It makes the real value of debts shrink, or at least become less burdensome—making it easier (relatively speaking) for debtors to pay off what they owe, which also helps the economy (especially if these borrowers take on new debts).
The New Yorker’s James Surowiecki discusses the idea of actively trying to increase inflation, which many economists suggest as a partial solution to give the economy a boost. He also explains why, even though there are economic benefits from inflation, most people abhor inflation, starting with that quote at the top of this post, followed by these thoughts:
“It’s easy to see why this makes us uncomfortable. It seems to reward those who have behaved recklessly, and to punish those who played by the rules, saving their money and living frugally.”
The truth is that you can’t really expect anyone—let alone the government—to help you save. There are far more forces out there that’ll help you help out the economy by handing over your hard-earned dollars to somebody else.
Throughout the economic crisis, consumers have been sent a mixed message: that individually, it is wise and prudent to save, but that collectively, we need to spend to get the economy humming along again. Such an ambivalent message gives some merit to the theory that the government wants you in debt, mainly because when people are in debt it’s good for the economy in two key ways: 1) The fact that you’re in debt means you have been buying stuff; and 2) People who are in debt tend to work their butts off in order to get out of debt—or to keep buying stuff.
That combo of increased spending and increased productivity makes government officials and economists happy. But is the individual consumer happier in this snowballing scenario of work, spend, acquire debt, then work more, spend more, acquire more debt, and so on? The individual consumer’s happiness (or lack thereof) doesn’t concern government officials and economists. They’re focused on the economy.
