Inflation rate targets for developed economies are currently between 2 and 3 percent. That’s just too low, though, and it’s curtailing growth considerably.
Much higher inflation rates, perhaps over 10%, would make holding onto one’s money much less attractive, thereby boosting consumption (and economic growth and jobs). Once companies see consumers spending big sums of money again, then they in turn will be encouraged to invest in new capital equipment and expand their workforces. That will get us started along the virtuous cycle of growing productivity that will quickly re-balance the economy. But waiting for companies to just start spending again, without seeing sales rise first, is simply not going to happen. Indeed, consumers/consumption is simply more important, especially in getting a recovery underway; remember, it’s consumer spending that underpins the majority of GDP (about two thirds in the US, the world’s largest economy).
Unfortunately, led astray by mistaken economic theorists and quite likely by a Chinese government with long-term ulterior motives (i.e., to dilute western power over it), America and its analogs have developed a reputation for being irresponsibly extravagant. Notwithstanding the obvious folly of no-down-payment mortgages pre-2008, however, that’s largely phooey.
To wit, making inflation out to be the big bad enemy of economics has been absolute nonsense. The real enemy is all the scaredy cats who have their money parked in cash and gold.
So America et al, go out and print more money – LOTS of it – and put this ‘debt crisis’ nonsense behind you so that we can all calm down and get the wheels turning again. And, hey you, rich guy, why don’t you sell some of that gold you’re hoarding and buy your wife a present once in while.
Otherwise, we’re going to get a new reputation in the West: that of mass poverty.