Written by:
Ryan Shyu

Job Creation: The Case for Inflation

Jobs are the thing on everyone’s mind now. Greg Mankiw provides great links to perspectives from Nobel laureates Paul Krugman and Gary Becker.

Becker’s article got me thinking. He writes that when there’s unemployment, companies are supposed to be able to cut wages and hire more people. The problem is that this is practically hard to do for companies. Becker, like a good Chicago economist, proposes that we use an income tax cut to achieve this goal.
Even Becker, however, concedes that such a tax cut has major drawbacks right now. This begs the question: why not create some inflation? Inflation would reduce the real wages that workers make in the short run, allowing companies to hire more workers. In addition, expected inflation would also increase the cost of holding money, making people spend and invest more now and increasing business activity, leading to even more jobs.

Inflation wouldn’t come without serious problems, of course. There are good reasons that we’re so scared of inflation. But unusual times call for unusual measures. Harvard economists Greg Mankiw and Ken Rogoff have already supported inflationary policies for various reasons. Now might be the time for a policy of inflation.

Photo courtesy of Flickr.