Well DUH!

In Fed and Out, Many Now Think Inflation Helps - NYTimes.com

Inflation has been below the Fed's target rate most of the time for the last decade. That is bad for most Americans. The dollars that bought the house I grew up in, for instance, were greatly devalued over the next 30 years by inflation, making a higher standard of living possible for my family even while paying back the mortgage. But college graduates now face very high interest rates on student loans, while not able to expect increases in pay as they pay these loans back.

The article I cite above says that the Fed may increase the inflation rate, and this is what I have been saying they should do for quite a few years. The trouble is, people are swayed by the crocodile tears shed about those poor people on fixed incomes. (wait! I thought the same people making that argument have eliminated pensions, haven't they?)

They also buy in to the fairy tale that higher corporate profits cause corporations to hire more people. If that were true, then as corporate profits skyrocketed over the last couple of decades, they should have been hiring just about anybody with a pulse. And yet labor force participation rates are falling.

And they also say that inflation gives corporations the opportunity to cut wages. That's certainly true, but it's also true that cutting real wages over the last 35 years or so is what ultimately caused this mess. When things like this are true:

 The typical worker has had stagnating wages for a long time, despite enjoying some wage growth during the economic recovery of the late 1990s. While productivity grew 80% between 1979 and 2009, the hourly wage of the median worker grew by only 10.1%, with all of this wage growth occurring from 1996 to 2002, reflecting the strong economic recovery of the late 1990s.

then workers have less to spend, and firms sell less. They may make higher profits by cutting workers' real wages, but those profits do not lead to hiring when nobody's buying.

So overall I'm encouraged that it's just possible that the Fed's economists (especially if Yellen is confirmed) may get their collective heads out of the but of 1970s stagflation, even if the major reform needed, a stronger bargaining position for labor, is not part of the package.