Inflation is slightly underrated

Still bad, yes, but it has a few upsides, here is one part from my Bloomberg column:

It’s also worth asking which groups are most hurt by inflation, and which least. On the one hand, inflation helps debtors, and the debtor class is often relatively poor. Yet there is also a large set of distributional effects through wages, and those effects might prove more congenial to conservative values.

One obvious loser from higher inflation is someone with a tenured job, either de facto or de jure. To use an example close to home: Many professors cannot easily switch jobs and duplicate their current working conditions, nor can they easily demand and receive offsetting raises. A lot of them are locked into their current posts — which is hardly surprising, since the nature and incentives of tenure do not require those who have it to stay at the top of their game to keep their job.

Many conservatives wish to abolish academic tenure altogether. That’s unlikely to happen (though Florida is making moves in that direction), but a dose of inflation might make tenure less appealing.

Many government bureaucrats also often have de facto tenure, and many of them are not so marketable to the private sector. For them, higher inflation is a pay cut. Again, just as inflation will not abolish tenure, so it will not eliminate bureaucracy. But it may make the less dynamic parts of the public sector less attractive, helping to slow the growing bureaucratization of society.

In contrast, consider a private entrepreneur who will attempt seven start-ups over the next 20 years, with some succeeding and others failing. That person probably will not suffer much from inflation, as he is starting from scratch with new nominal values on a fairly frequent basis. More generally, productive people who have flexibility and the ability to adjust to circumstances will emerge relatively unscathed as well.

Here is some commentary from Scott Sumner, though I think Scott is not taking me literally enough.  Inflation really is bad (“never reason from an inflation change!”…nonetheless), it is simply elsewhere that I explain my views on that.  And do note an extensive literature shows that the Fisher effect does not hold 1-to-1, and thus inflation at modest levels does lower real borrowing rates.  It is also funny for Scott (“Money Illusion”) to say that short-run non-neutralities do not matter.