One of the problems with inflation is that it causes people to think they have more wealth (as expressed in money) than they really do. Thus, they invest in things which they soon won't value so highly. They then have to liquidate those investments. This can be an expensive process. The only thing that can be done is to continue to inflate, so that people don't realize that their investments are worthless .... during your administration.
There are many ways for bad policy to create bad investments. Inflation, as discussed above, is one. Another is subsidies. Another is tariffs. Another is price controls. We need to be clear, though, that these effects are caused by a bad policy. The sooner we stop the bad policy, the sooner the bad investment will be noticed and corrected.
CDarklock writes in response to a posting of mine about misbegotten criticisms of libertarianism. He points out that (for example) public schooling has sucked up uncountable amounts of investment in "the system", and goes on to name some of the unseen effects of doing away with public schools. I believe that his analysis is correct. While a plan for dealing with the bad investments would be good, I believe that it's more important to 1) stop the bad policy, and 2) recognize the bad investments sooner rather than later. In this manner, people would stop making the bad investments.
posted at: 06:49 | path: /economics | permanent link to this entry