Because economic growth is the only way to pay off the massive amounts of debt that currently exist. The US needs to constantly grow and acquire more and more resources, labour and capital or else it will cease being the way it currently is...
Inflation also is a way to get rid of debt. A few years with 10% inflation would do wonders for the debt of most countries, provided that their debt is in their own currency.
The correlation between inflation and lower growth is not as strong as one would think. See for example the graphs on pages 22-23 in http://www.frbsf.org/economic-research/publications/98-1/15-... and the number of 'generally supports', 'probably' and 'may exceed' phrases in the conclusion.
> The correlation between inflation and lower growth is not as strong as one would think.
Of course not. Inflation is a symptom and not a cause. If lower inflation or even deflation lead to growth, then a penny should still have value, and a dollar should be a good amount of money (we've abolished 1 cent coins altogether, and a dollar buys very little). But our economy has grown a lot since the 1950's, and inflation has happened.
Inflation is caused by many things. In Zimbabwe's case, they tried to print money to finance various things. With no underlying value, the money quickly devalued.
In the case of Canada, the US and other western nations, we've enjoyed economic growth, but because demand for goods and services has generally outpaced supply, prices have gone up. Right now where I live, an 'average' house costs $450K.
Anyhow, thanks for the link, but I've spent too much time looking at Solow equations for my liking (currently doing a degree in economics).
Zimbabwe was a failed state before it had hyperinflation. i won't say that we get good answers on the difference between moderate and hyperinflation, but I am sure there is a difference.
Hyperinflation is just a good apocalyptic narrative device, and people (ab)use it.
Inflation would be a way to get rid of debt, but it literally takes money from the poor and working class and gives it to the rich.
10% inflation is equivalent to a person's salary going down by 10%. Also, any savings you had would be eaten up by 10%. Inflation is the same as taking people's money to pay debt. It's not some magic thing that makes debt go poof.
If you manage to combine a x% inflation with a x% rise in welfare payments and of worker's income, people with relatively little money in the bank will not suffer much. That includes the poor and the very rich (who likely will have invested a large fraction of their savings).
The clear winners will be those with relatively high debts, the losers those who have been saving, but not investing.
Is it fair to tax the ants while rescuing the grasshoppers? No, but if the country as a whole is a grasshopper, it may be the best one can do.
A side effect of this strategy is that it teaches ants to invest, rather than put money in the bank. That's another reason why many countries aim for inflation.
The unfortunate side effect is that it shafts pensioners who should not be investing in equities because of the time scales involved. The UK (though a hefty dose of electioneering is involved) is offering bonds to pensioners which pay a higher coupon to offset the low gilt returns available.
