Goodhart sighting? Misunderstanding of causality sighting? Check out this recent economic analysis on Slate.com (emphasis added):
For much of the modern American era, inflation has been viewed as an evil demon to be exorcised, ideally before it even rears its head. This makes sense: Inflation robs people of their savings, and the many Americans who have lived through periods of double-digit inflation know how miserable it is. But sometimes a little bit of inflation is valuable. During the Great Depression, government policies deliberately tried to create inflation. Rising prices are a sign of rising output, something that would be welcome in the current slow-motion recovery.
(He then quotes an economist that says inflation would also prop up home values and prevent foreclosures.)
Did I get that right? Because inflation has traditionally been a sign of (caused by) rising output, you should directly cause inflation, in order to cause higher output. (Note: in order to complete the case for inflation, you arguably have to do the same thing again, but replacing inflation with output, and output with reduced unemployment.)
A usual, I'm not trying to start a political debate about whether inflation is good or bad, or what should be done to increase/decrease inflation. I'm interested in this particular way of arguing for pro-inflation policies, which seems to even recognize which way the causality flows, but still argue as if it runs the opposite direction.
Am I misunderstanding it?
It's possible - the next sentence after your quotation reads:
As economist Casey Mulligan has argued, some inflation right now could have some salutary effects: "Specifically, inflation would raise prices of homes, among other things. Higher housing prices would pull a number of mortgages out from under water … and thereby reduce the number of foreclosures."
...which is at least a causal mechanism that would go the correct direction. That said, the part you quoted sounds pretty bad.
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