The Inflationistas Will Destroy The Desire To Save

A penny saved may be a penny earned. But don’t count on it still being worth the same amount when you want to spend it – especially if Harvard economist Kenneth Rogoff gets what he wants.

As the Federal Reserve does everything it can to dump new money into the economy, many people, myself included, are convinced that we are headed toward a period of potentially serious inflation. Most of those people are equally convinced that inflation is a bad thing. It is, after all, one of the two ingredients in the so-called misery index.

In recent comments, however, Rogoff has advocated intentionally creating “moderate inflation of, say, 4 to 6 percent for several years.” In an opinion piece in the Financial Times, he acknowledged that his proposal might be anathema to some, but said “a once-in-75-year crisis calls for outside-the-box measures.”

The idea behind the inflationary solution is to get people out of debt by effectively reducing the amounts they owe. A $100,000 mortgage stays a $100,000 mortgage, but if a government can churn up a 4 to 6 percent inflation rate, that $100,000 becomes a smaller amount relative to the cost of other goods and wages. According to Rogoff, the main issue facing our economy is “a huge overhang of debt,” so anything that helps debtors pay back what they owe for less is a good thing.

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