The most dangerous suggestion with regard to monetary policy is that central banks should target higher inflation by allowing prices to rise, on average, by more than the conventionally accepted 2 percent. Inflation ‘doves’ acknowledge that debasing the currency is a form of taxation, yet they defend higher inflation by saying that it is no worse than other forms of taxation...

Lyndon Johnson deliberately chose inflation as the expedient way to transfer resources to the government because he did not want Congress to debate the merits of the Vietnam War versus the Great Society programs. For President Johnson, the “tax no one has to vote for” was a way to avoid the constitutional requirement that taxes had to originate in the Ways and Means Committee of the U.S. House of Representatives.

Today, one motivation for advocating the inflation tax is that it is a way to impose taxation on the very large share of the population that is exempt from the income tax, while at the same time asserting that a political pledge of “no tax increases for low-income people” has been kept. This cynical cop-out will be successful in forestalling fiscal disaster only to the extent that the public at large is surprised by the timing and extent of the acceleration of inflation.

Honest Money

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