You probably wouldn’t expect an economist who served in the George W. Bush administration and one who advised John McCain to advocate increased inflation.
But that’s exactly what Gregory Mankiw and Ken Rogoff recommend for the economy, Bloomberg reports.
They say higher inflation would ease the debt burden of consumers and the government. It could also boost consumer spending, thus helping the economy to recover.
“I’m advocating 6 percent inflation for at least a couple of years,” Rogoff, former IMF chief economist, tells Bloomberg.
“It would ameliorate the debt bomb and help us work through the deleveraging process.”
The Federal Reserve, of course, already has cut the federal funds rate to between zero and 0.25 percent and has launched a “qualitative” easing program, snapping up securities from the bond market.
With the Fed unable to cut rates further, Mankiw says it should pledge to generate “significant” inflation. That would help push consumers to buy and borrow more, he says.
Of course letting the inflation genie out of the bottle may be a lot easier than reining it back in.
“Anybody who has been a central banker wouldn’t want to see inflation expectations become unhinged,” Marvin Goodriend, a former official at the Richmond Fed, tells Bloomberg.
“The Fed would have to create a recession to get its credibility back.”
Zhu Min, a top official at the Bank of China, meanwhile, told CNBC that quantitative easing — the Fed’s massive money printing program, a surefire inflation booster — could end up destroying the dollar.
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