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Feldsteins on Supporting Bush

July 10, 1988

While many other criticisms could be lodged against Martin and Kathleen Feldstein's defense of the Reagan Administration economic record, their misleading discussion of inflation deserves special attention ("Economic Record Says That Voters, Especially Women, Should Be Supporting Bush," Op-Ed Page, July 4).

The Feldsteins are at a loss to explain Vice President George Bush's low rating among women, who (they say) ought to appreciate the disinflation of the 1980s. "Women still do most of the family shopping and so they must know the record here. . . . If the double-digit inflation that existed at the start of this decade had continued, prices would be more than 75% higher today than they actually are." The clear implication is that, were it not for the successful attack on inflation, living costs would overwhelm income and most families would be eating pet chow.

This is a popular view of the costs of inflation: high prices hurt everyone. It is so widespread that no one is surprised when economists--even world-reknowned experts like Harvard's Martin Feldstein--repeat it. In fact, it is the sheer normality of the Feldsteins' views that are so extraordinary, since they are fundamentally, incontrovertibly wrong.

The matter is quite simple, really. Since the days of Adam Smith, all competent economists have known that, given any particular rate of economic growth, inflation can have no overall effect on real income or purchasing power. The reason is obvious: The money we pay in higher prices is returned to us in the form of higher wages, dividends, and other types of payments. That is, the increased dollars we pay due to inflation don't disappear down a black hole--they are recycled through the economy. The only negative effect inflation can have on total real income is through the expenditure of time and energy by people trying to cope with it. This can be significant for countries undergoing triple-digit rates of inflation--the Argentinas and Israels of this world--but it is virtually negligible in the recent experience of the U.S.

We can only speculate about the motives underlying the pronouncements of the Feldsteins and their ilk. Perhaps they worry about the more subtle indirect difficulties created by inflation--problems of uncertainty in long-range planning, adjustments in currency markets, and so on--but think the general public can't grasp these things, so they will have to be misled for their own good. More cynically, it may be that most professional economists, a generally affluent lot, identify with the perspective of the wealthy who, as net lenders, suffer from unexpected bursts of inflation. Whatever the reason, however, economists ought to be held to the same standards of accountability as professionals in other fields.

PETER DORMAN

Riverside

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