Amity Shlaes has a good piece today in Bloomberg where she rightfully notes that, strangely, lawmakers and economists live in fear of deflation while treating inflation as a lesser and more remote threat:

The shared belief is that the potential for deflation or credit-and- deflation-related spirals deserve our near-exclusive attention. . . .
Our leaders treat an inflation crisis as the lesser threat, a remote possibility that warrants lip service, at most. Thus over the weekend Bernanke mentioned the possibility of having to increase interest rates at some later point — but it was really just a passing reference.

For sure, deflation isn’t a good thing. Deflation can cause depression. It isn’t fun living in an environment where there isn’t money to go around, when banks are shutting down and people lose their homes for lack of cash. However, she reminds her readers, inflation can be a terrible thing too, not simply an “acceptable evil” like many economists and our Fed Chairman claim.

And significant inflation can match deflation blow for blow. In the 1970s, inflation coexisted with slow growth or outright shrinkage of the economy. Those who don’t think about inflation also didn’t think about the first half of 1980, when West Coast mortgage rates rose to 17.5 percent. That meant people could afford less house than today. The U.S. homeownership rate dropped below 65 percent and did not come back until 1996.

Of course, there is also the well-known hyper inflation case of Germany during 1920s where money lost value so fast that Germans switched to other monetary signs like cigarettes (what currency would we use today if hyper inflation hit?)

Like Shlaes, I was puzzled by the lack of fear that inflation triggers. That’s until George Mason University economist Peter Boettke explained to me that, “A problem with the current monetarists is that while they learned from Friedman the idea that we should fight inflation, in practice they learned from his writings on the Great Depression that central banks should fear deflation.” Basically, economists — with Bernanke leading the pack — who are theoretically inflation-hating Friedmanites now want to meet every downturn by fighting deflation.