The Costs of Inflation

The main costs of inflation are hard to model, Because they stem from imperfect information processing. Here are the costs of inflation: It messes with our minds, And because of messing with our minds Makes us blame it for things it doesn't do--like lowering real wages-- As well as for things it does. Admittedly, taking the blame for reducing real wages May reduce conflict between firms and workers. It messes with the minds of legislators. It messes with the price system, Which is a crucial part of the mind of the Invisible Hand. It messes with contracts, Which are a key part of the mind of the legal system. Least important of the costs of inflation Is raising the opportunity cost of holding cash. But that and all the other costs become huge under Hyper-Inflation. The danger of Hyper-Inflation is why the Fed can't perpetually keep output above its natural level. The danger of Secular Stagnation is what would happen if output were perpetually below its natural level. The costs of inflation are real and substantial, but underestimated by economists who think it is a faux pas or a sin to model economic agents as anything less than infinitely intelligent in their economic decisions.