I proceed on the assumption that our readers are not coupon clippers.
This is getting close to sedition against the rentier class and borders on an an open call for Jubilee.
From the Financial Times' Alphaville blog:
On price stability during an ‘abundance shock’
Everybody loves price stability.Okay maybe not as rabble rousing as I intimated.
Everybody expects price stability.
Everybody believes price stability is something they are entitled to.
But what if price stability comes at a cost? What if the act of enforcing price stability transforms what should be a variable into a constant at the cost of bleeding variability and volatility elsewhere?
What if price stability isn’t what we thought it was.
These are the very perceptive observations of Steve Randy Waldman at Interfluidity.
We absolutely loved his post on the idea that stabilising prices is immoral. It borrows a bit from market monetarism, but is fairly unique (at least to our knowledge) in the way it communicates these ideas.
To summarise, what Waldman is saying is that the corrective action taken by central authorities to ensure price stability always ends up benefiting one party over another.
In an inflationary environment, brought on by supply shocks (or expectations of supply shocks), measures to keep prices grounded tend to reward the secure members of society over the insecure. Inflation by its nature, after all, rewards the debt laden, while harming savers and anyone who lives within their means.
So when a supply shock hits and prices rise — itself the effect of a reduction of the supply of goods and services – the central authority intervenes to reduce aggregate demand by raising interest rates or conducting other monetary operations which limit the amount of credit or money in society. Or alternatively by hiking taxes.
This very clearly benefits one group of people:
Who are these people? Can we identify them? Sure. People who benefit from nonincreasing prices are people who hold nominal-dollar assets. That includes most obviously creditors — people with money in the bank, bondholders, etc. — but also people with stable employment but little bargaining power to pursue raises. These groups would see their purchasing power fall in an inflation. If the government restrains prices by reducing aggregate demand, it helps these groups by shifting costs to others. If prices are stabilized via monetary policy, debtors pay: both the increase in interest rates and the reduction of aggregate demand increase the burden of repaying debts. If prices are stabilized via increased taxation, then obviously whoever bears the incidence of the new tax pays. In both cases, marginal workers pay, by enduring an increased likelihood of becoming unemployed or a diminished likelihood of finding a job.You get the picture.
Yet, if price stability benefits the above group of people during a supply shock, it stands to reason that it also hurts another group of people at the same time: debtors, taxpayers and marginal workers to creditors and secure workers....MORE
More of an intellectual scenario gaming of what happens when you turn variables into constants and vice versa.
Providing you like your vice, versa.
(remember it had the word immoral in the eighth sentence)