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Why We Need a Goal of Zero Inflation - Essay Example
Milton Fiedman once said that with the introduction of fiat currency, there was no longer any method of standardizing and stabilizing the price system, and no standard of value exists. It is incumbent upon the central bankers to provide that stability (Keleher)…
Keleher reports that, "This objective has been endorsed not only by many of the world's most esteemed monetary economists but also by many Federal Reserve officials". A zero inflation rate will not impact the unemployment rate as critics contend. It will, however, stabilize the economy, and benefit the average worker.
Though there is some debate about the definition of zero inflation, almost all economists agree that high inflation rates have a negative impact on the economy. When the inflation rate reaches double digits, economies will experience slower rates of growth. The unpredictable future of inflation rates reduces investment, spending, and creates a climate ripe for poor planning. Future prices and uncertainty about future income affects everything from automobiles to the real estate market. There is no doubt that a goal of zero inflation is desirable in today's instantaneous, global economy.
As much as it is desirable for the corporate economy, it is even more so for the individual. Retirees on fixed incomes face an uncertain future with high inflation. For the average worker, an inflationary rise in wages will lag the increase in prices, which will place them permanently behind the inflation curve. The complexities of evaluating personal financial decisions in an inflationary market leaves the consumer open to exploitation. ...