There is an old expression: "Be careful what you wish for -- your wish may come true!"

For years, a number of us, including policymakers, have been wishing for less inflation, if not its elimination altogether.

Well, inflation has slowed considerably from its overheated pace of 10 years ago. As a matter of fact, in many sectors of the U.S. economy, inflation has not only disappeared. It has been replaced by deflation.

Creeping Doubts

Now, some people are beginning to wonder whether less inflation is all it's cracked up to be. This is because the curbing of inflation has apparently produced a number of side effects, not the least of which may be the difficulty that the economy is having in escaping the clutches of recession.

Those who have been forced to accept inflation undoubtedly have no problem with its slowing. As a matter of fact, since no one likes to pay more for anything, those who look only at this aspect of inflation are not disappointed by its curbing.

However, there's more to inflation than what the buyer sees, and it is these other sides of inflation that warrant examination.

Let's start with one of the more publicized reasons for today's sluggish economy -- the need for consumers and businesses to reduce some of the debts they have taken on.

Encouragement for Layoffs

Many companies are trying to cut expenses to generate the cash flow to service the debt they assumed in the 1980s.

The most prominent cost -- if not the largest -- any firm is the cost of labor. Not surprisingly, many companies have reduced their payrolls by substantial amounts, cutting blue-collar and white-collar jobs alike.

The well-publicized layoffs have caused great concern for many people, not just those who have lost their jobs but also the great majority who are still employed but worry that they might be next to go. The result: Spending has been dampened. In turn, this has led to disappointing sales, causing additional layoffs.

Consumers now buy only what they feel they must, from the cheapest nearby outlet. They oppose paying more -- which, of course, affects the sales dollars business rings up at the cash register.

And it's not just the fact that people's incomes aren't growing that's keeping them from spending. It's also that the value of most families' biggest asset -- their homes -- is actually falling.

Discouragement for Consumers

This has not only left many households with less of a financial cushion than they might have planned on but also has affected their attitudes. And both effects have translated into reduced spending.

Needless to say, more than a few families owe more on their houses than their current market value. These folks wouldn't mind seeing inflation make a comeback.

Borrowers in general like inflation for several reasons.

First, their loans can be paid off with cheaper dollars -- the longer the term of the loan, the cheaper the dollars as long as inflation continues to erode the buying power of the buck.

Second, because borrowing permits one to buy something sooner, a borrower gets ahead in a period of inflation since buying sooner rather than later beats higher prices.

Creditors' Perspective

Because of this, many people do not hesitate to go into debt, expecting to be bailed out by inflation.

Lenders also have a stake in inflation. For one thing, when it is easy for companies to raise prices, it is also easier for them to service their debt. In addition, since most loans are made on a floating-rate basis, when inflation causes interest rates in general to rise, the rates on existing loans will rise as well.

Another reason for today's sluggish economy is that companies are trying to keep inventory levels down. They are also holding off investing in new machinery and equipment, not only to cut costs but also because they don't expect prices to rise in the near term. Their strategies would be the exact opposite if they thought prices of these items were about to rise.

If borrowers and lenders have learned to live with inflation, what about savers? No problem there, as well, since savers have come to like inflation, too. As any saver will attest, slow inflation has led to low interest rates.

With interest income twice as important to personal incomes today as it was 30 years ago, many people are finding that their buying power has fallen, not improved, because of low inflation.

Getting back to the business side, inflation helps management, too, by allowing companies to raise their prices without fear of losing customers. People are more likely to accept higher prices in an inflationary environment than when prices are more stable.

Real estate developers must be longing for inflation. Landlords have long inserted cost-of-living clauses in their leases while buying properties with only the smallest of down payments and the longest of mortgages. Inflation enabled these people to service their debts; deflation has made it more problematic.

Another group with a major interest in inflation is elected officials.

The Political Equation

Let's start with the notion that many people equate inflation with prosperity and deflation with bad times -- a reasonable thought in today's low-inflation but depressed economy.

At the end of World War II, the greatest fear was that, without the stimulus of wartime spending, the U.S. economy would lapse back into depression.

But as the end of wartime controls permitted companies to raise prices (and labor to obtain wage increases), the electorate began to feel better, even though inflation had flared.

The line of reasoning at the time was that inflation could occur only if the economy were strong enough to permit business to raise prices, and it was the economy's strength that was most important to people.

Consider, also, that inflation increases tax revenues for all governments. Incomes are boosted by inflation, which lifts tax revenues from this source; sales and property tax collections will rise for similar reasons. More revenues, of course, mean more money for politicians to spend on constituents.

Now, the question is whether people will really want to stay the course and support a low-inflation policy.

Since inflation is a monetary phenomenon, the answer ultimately comes from the Federal Reserve.

On the surface, the Fed appears determined to lick inflation, or at least reduce it to the point where it no longer influences people's decisions to buy, sell, or invest.

The Fed may be saying one thing, but it is doing another.

Bank reserves adjusted for reserve requirements are growing at one of their fastest yearly rates in five years. The money supply (excluding certificates of deposit) is soaring, and industrial raw materials prices have shot up.

Unless the Fed reverses course, generalized inflation will return.

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