Inflated Concerns

“Ever since the Great Depression, unemployment has been seen as both the endemic and the most dangerous disease of modern society and economy,” Peter Drucker wrote in The Pension Fund Revolution.

Today, that disease proved to be at least a bit more severe than previously hoped, as employers created what the New York Times called a “disappointing” 120,000 jobs in March. This was about half the number recorded in each of the preceding three months.

It’s the sort of thing that prompts some economists to urge policymakers to change direction. Writing in the New York Times, Paul Krugman argued, “We’d be better off if the Fed paid less attention to inflation and more attention to unemployment.” He added, “Indeed, a bit more inflation would be a good thing, not a bad thing.”

Drucker advocated basing decisions on evidence and feedback, so he would certainly have recognized that inflation is historically low right now, in contrast to breathless warnings from “inflation hawks.”

And Drucker was quite familiar with the debate over inflation versus unemployment. “The question whether unemployment becomes the lesser evil, and just how much unemployment a society can and will accept in order to control inflation, can . . . be expected to become a central political issue,” Drucker noted.

But he also considered inflation a grave danger to society, one that economists too often dismiss too easily. “We have known for a long time that inflation is a corrosive social poison, dissolving the bonds of trust in community and society,” Drucker wrote. “Economists, however . . . have tended to laugh off inflation as an economic problem, if not to proclaim that a little inflation is a permanent good.”

In another essay, Drucker flatly warned: “It is easy . . . for a government to do harm to its domestic economy. All it has to do is drive up the inflation rate.”

What do you think: Would a little more inflation help us right now, or is that a dangerous road to start going down?