We have never been very happy about indexing. It involves technical problems. Also some inequities. And it is a surrender to inflation. Again we would make economists earn their living - produce proper remedies and not evade the problems. Many kinds of income, pensions in particular, were fixed in the past by contract. There is now no one to pay the indexed increase or anyone who could properly be forced to do so. Many forms of savings could not be indexed, or not without great difficulty. And while indexing would help some people keep up with price increases, it would not prevent those who have greater power over their incomes from trying to get ahead of price increases. So, with indexing, you would have more inflationary pressure from people whose incomes would now go up with the index and just as much as now from people who want to gain on the price increases.
The prospect, on balance, would be for more inflation than before.
We say on balance, for you can't be absolutely sure; these things are difficult to predict, and you should remember that we economists compensate for great uncertainty of knowledge with great certainty of statement
Inflation hurts the weak and so do the orthodox measures for controlling it.
Inflation takes from the old, the unorganized and the poor and gives to those who are strongly in control of their own incomes.
Monetary policy works by putting people out of jobs and by depressing the prices of those who have the least control.
Also, it denies loans to the smaller man, who depends on borrowed money for his business, but it gives the corporations which have capital from their own earnings a free run.
Fiscal policy is somewhat more equitable than monetary policy.
But it also works by restricting production and employment, and it does this before prices are affected.
So it, too, puts the burden of controlling inflation on those who lose their jobs.
It works better on the prices of small businessmen and farmers, those who are least able to maintain their prices and incomes.
Inflation also causes problems in accounting. You are no longer sure what your earnings are worth. And, in making contracts, you don't know what your costs will be. There are also serious international complications; when different countries have different rates of inflation, exchange rates will be unstable. So we have never thought we should accept inflation. Economists, We repeat, should be held to high standards of performance. They should be made to deal with both unemployment and inflation and be paid accordingly. They should not be allowed to escape into failure.
Could inflation, under certain... see: Problem Of Inflation