"If inflation Was Good What About Zimbabwe"

The following article was a response to Teddy Sseezi-Cheeye’s opinion that inflation was good for the economy, Uganda's Daily Monitor (Feb 16, 2007).

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Please allow me to express my views on Teddy Sseezi-Cheeye’s article on inflation (Sunday Monitor, Feb 8).

First, inflation is among the least understood but most discussed economic trends. Economists and common people alike fall into the trap of confusing consequences of inflation with inflation itself. Cheeye’s article was not different. He, for instance, referred to inflation as the general rise in prices. This definition is not complete.

Inflation is correctly defined as the oversupply of money and credit, which causes market prices to rise. It should be understood that excessive money supply leaves people with more cash to spend. But because the quantity of goods supplied stays relatively constant, the economy is left with too much cash but with few goods to purchase. This forces consumers to bid on market prices, . . . like they do during public auctions. This results to rapid increase in prices of goods and services, which ends when the central bank stops printing extra currency (inflating). Ugandans experienced such a situation in 1980s. It’s not until Ugandan money supply was stabilized in 1990s that the economy started to recover.

Second, Cheeye portrayed inflation as the economy’s best friend. I kindly beg to differ. If this claim was true, Zimbabweans, who are crying over their 1,000% inflation rate, would be the happiest people on earth.

Third, I was shocked by Cheeye’s justifications for increasing both money supply and government borrowing. His reasons went against the very macroeconomic principles he was trying to address. I wish he could read the book “Economics in One Lesson” by Henry Hazzlitt. It’s a very short economics classic that can be downloaded from the Foundation for Economic Education’s website (www.fee.org).