Thread by @delong

@IvanWerning What I do not like about this: it does not stress that inflation is the equilibrium flex-price optimal response to the current crisis:

1. We have _a lot_ of temporary structural adjustment to do during the shutdown phase as we shift economic activity to sectors that do not 1/

@IvanWerning require social contact. With downward rigidity, that means prices in expanding sectors ought to rise—a lot—to give the market the right signals to adjust.

2. When the shutdown phase is over, the optimal configuration of the economy is close to what it was when the crisis 2/

@IvanWerning began. That means:

a. no business should be sent a "bankruptcy shutdown" signal as a result of the crisis
b. no worker should be sent a "bankruptcy you-need-to-change your life" signal as a result of the crisis.

3. But any attempt to hold the aggregate price level 3/

@IvanWerning near where it was pre-crisis will send a huge number of "bankruptcy shutdown" signals to firms and "bankruptcy change-your-life" signals to households; those signals are inappropriate and destructive.

4. "But won't allowing inflation add to risk & discourage enerprise in the 4/

@IvanWerning future?" some will ask & protest. Yes, but an economic system that reacts to shocks with Great Depression-like events adds to risk & discourages enterprise a good deal more.

5. "But isn't inflation a taking from creditors?" Think of it, rather, as an exercise of eminent 5/

@IvanWerning domain. The government guarantees your property by greatly reducing the costs you would otherwise have to pay to guard and protect it. In return, the government has the right & power to tax—formally & informally, through the IRS & inflation—for the greatest good of the 6/

@IvanWerning greatest number.

7. "But debtors will obtain windfall profits, & they are shiftless people without moral worth, & rewarding them will encourage idleness". Very few people are being enriched by coronavirus. I'm confident Betsy De Vos & Jared Kushner will look back with 7/

@IvanWerning pleasure & glee. But they and those like them are not enough to worry about.

8. There are things for which THE MIGHTY ONE WHO IS made inflation. This is one of them.

But, you may say: "price stability is an important value!" Yes, price stability is important. Near-full 8/

@IvanWerning employment is more important. There are times when there are no paths that preserve both, & you have to choose. This is one of them.

It is important for economists to recognize that, and advise accordingly: THE MARKET WAS MADE FOR MAN, NOT MAN FOR THE MARKET. 9/

@IvanWerning But that is not so, some—Richard Epstein comes to mind—may say. They may say that the right view is "THE MARKET GIVETH, THE MARKET TAKETH AWAY, BLESSED BE THE NAME OF THE MARKET" Such people need to report to Arkham Asylum pronto... 10/END