I bring my Readers this Argument, though I have little faith in it. My major opposition to the theory lies in the fact that Inflation is a One-Shot stimulus, exhibiting benefit only in the year in which it occurs, and requiring additional inflation in following years to present any stimulus. Actual fact states following years without inflation endure the full price-distortions as mentioned in the article, without significant easing of these crippled prices in the following years. There is also the assumed loss of paid capital, which purchases far less under the inflation, and creates a real counterfactual stimulus the higher the inflation rate; this means that the economy is losing equity as rapidly as it gains stimulus. These facts lead one to doubt that there is serious relief from Recession presented by inflation.
Realistic calculation suggests that We actually need an environment exhibiting a Zero or Negative inflation rate in order to achieve real Stimulus. We need an increase in both Production and Consumption, without any major increase in Production Costs. One can get tricky about this later fact, choosing a realistic or a false image of Production Costs. Either can be turned into real stimulus, though Business hates the false image; further explanation will explain Why this is the case. Most Students understand the basic ways to curtail Production Costs: increase Productivity (think layoffs–bad for stimulus), use of inferior materials (bad for Consumption), or Vertical Integration (bad for Product pricing–highly inflationary). Creating a false suppression of Production Costs has many suggestions, but the only effective means is by Taxation. There is a famous Business Saying never heard but understood, stating that Business likes everything about Government–their largest and best-paying Consumer–except for Taxes.
There are two basic methods for adjusting taxation to create the false image of stable Production Costs. The first takes into account that it is the Consumer, not Business, who actually needs support during Recessionary periods. Automatic tax policy would cut Personal Income taxes by a specified amount–I suggest 5% reduction–whenever there is any Quarter within the Tax year with Zero or Negative GDP; while Business taxes get a Surtax of 10%. The second automatic method of taxation, automatic will be the only thing which will achieve these Results, is to reduce Personal Income taxes by twice the inflation rate, while increasing Business taxes by twice the inflation rate. There are serious reservations to both methods of taxation, but I feel both are better than the ad-hoc economic policy developed on the Go in the Rodeo ride WE call Government. Now We await the firestorm! lgl