Paul Krugman is wasting his time trying to figure out why the rich and powerful don't like inflation. There's a simple answer, that also explains why the non-rich and non-powerful don't like inflation either.
And you don't need any fancy political economy to figure out the answer. If you want to know why non-economists don't like inflation: just ask a non-economist.
Ask your first year students why inflation is a bad thing. Or ask your Mother (unless she's an economist). I get the same answer from both. And I've been getting exactly the same answer for the last 33 years of teaching ECON1000.
"Because if all prices rise 10% we will only be able to afford to buy 10% less stuff. Duh!" Except the "Duh!" is silent, because my students are too polite.
You don't even need to ask your first year students, or your Mother. Just read the newspapers.
Journalists are smarter and better educated than most people. The Globe and Mail employs better journalists than most papers. Here's a journalist writing in the Globe and Mail's Report on Business just a couple of days ago (and he's an experienced financial journalist too):
"Stephen Poloz was concerned that inflation was too low when it was officially sitting between 1 per cent and 2 per cent (it hit 1.1 per cent in February). When it’s droopy like that, or goes negative, it’s viewed as potentially disastrous. Consumers, we’re told, put off purchases because they expect things to get cheaper, creating a self-fulfilling situation that leads to a badly recessed or even depressed economy. If inflation is too strong, wages can’t keep up and purchasing power erodes. So central bankers like it not too high, not too low, in the range of 2 per cent (between one and three), which in Poloz’s words, gives policy makers room to manoeuvre: i.e. they can raise or lower the policy rate to try to achieve price stability." [bold added]
If the central bank is targeting inflation, what is the right rate to target? If there is some optimal rate of inflation, there must be some costs of targeting too low a rate of inflation (he gets that bit roughly right), and there must be some costs of targeting too high a rate of inflation. What are those costs? Hmmm. It must be that inflation reduces purchasing power!
The inflation fallacy is brought in to explain why central bankers think that 2% is the right level of inflation to target, and not some higher rate. A good journalist believes that a good economist like Steve Poloz believes in the inflation fallacy. Economists would instead talk about shoeleather costs, menu costs, relative price distortions, difficulties of indexing taxes, confused accountants, etc. How many non-economists have you heard mentioning any of those things as the reason why inflation is a bad thing?
Ours the task eternal. But sometimes I think we should just give up. If we can't explain to people why inflation isn't a bad thing for that reason, let's change the world so that inflation would be a bad thing for precisely that reason. Let's target NGDP. With the Bank of Canada holding the time-path of NGDP constant, any inflation would be a bad thing precisely because it would reduce real income.
Would free trade/reducing monopoly power/whatever reduce inflation? If so, it will make us richer!
Let's make the inflation fallacy true!
P.S. And if Market Monetarists campaigned with the slogan "We will increase money incomes!", while Keynesians campaigned with the slogan "We will increase inflation!", who do you think would get the bigger "constituency"? (OK, that's a little unfair, because some Keynesians support NGDP targeting too, but I can't resist.)