When people begin anticipating inflation, it doesn't do you any good anymore, because any benefit of inflation comes from the fact that you do better than you thought you were going to do.
Interpretation
Anticipating inflation can negate its benefits, as expectations influence outcomes.
This quote by Paul A. Volcker highlights the complex relationship between inflation and people's expectations. When individuals or markets begin to anticipate inflation, the original advantages of inflation—like improved performance beyond initial expectations—can be diminished. Essentially, if everyone expects inflation, it can lead to a self-fulfilling prophecy that undermines the positive aspects of economic growth related to inflation.
In practice
In a seminar about economic forecasting, this quote can shed light on the impact of consumer expectations.
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.
The first step to prescribing the right medicine is to recognize the cause of the illness. And, when it comes to what is ailing the global economy, extreme monetary easing has been more cause than cure. The sooner we recognize that, the stronger and more sustainable the global economic recovery will be.
If anything, taxes for the lower and middle class and maybe even the upper-middle class should even probably be cut further. But I think that people at the high end - people like myself - should be paying a lot more in taxes. We have it better than we've ever had it.
A banker who is allowed to borrow money at X and loan it out at X plus Y will just go crazy and do too much of it if the civilization doesn't have rules that prevent it.
So that the record of history is absolutely crystal clear that there is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free-enterprise system.
Economic systems are not value-free columns of numbers based on rules of reason, but ways of expressing what varying societies believe is important.
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