A small but positive rate of inflation can be good for an economy

I must admit that it will be difficult to follow such a start. However, I will still attempt to present a strong enough case for why inflation, whether small or large, is not beneficial for an economy. Today, in the United States, the main concern is the economy. This current recession that we find ourselves in has many culprits, but one unmistakable cause of the troubles is inflation. Inflation in the housing markets, in tech markets, and others. This alone would seem evidence enough that inflation is not a positive change for an economy. This is not enough though, as the inflation that occurred in these markets was rapid and uncontrolled. It was not a small rate of inflation, as my peer is stating is a good thing in economic terms. My peer makes a mistake though, in not explaining, how inflation is to be controlled so it remains a steady increase and does not become rapid. Is it even possible to control inflation? Well, it depends on what is meant by control. If by control one means to raise/lower interest rates, as the Federal Reserve does, print more money, and cross your fingers hoping it works. Then yes, it can. However, markets are anything but controllable, and attempts to control inflation have been far from successful. A small rate of inflation easily spirals out of control into a bubble. At this point a reasonable question can be asked:No matter what the positive effects, if something is harmful, cannot be controlled, and because of this lack of control quickly becomes far more harmful, are any positives relevant? Now I will attempt to refute my peers points: Point: - That inflation is a natural-by product of growth. Starting, my peer has falsely stated the inflation is a by-product of growth. Common sense dictates that as an economy grows, more product will be available and thus price will fall so as to ensure the product sells. It even makes mathematical sense as well. "Some simple arithmetic will help clarify. Start with the famous equation of exchange, MV = Pq, where M is the money supply; V is the velocity of money, that is, the speed at which money circulates; P is the price level; and q is the real output of the economy. If the growth rate of the economy increases, that is, if the growth rate of q increases, then, if the growth rates of M and V are held constant, the growth rate of the price level must fall. Since the growth rate of the price level is just another term for the inflation rate, the inflation rate must fall. An increase in the rate of economic growth means more goods for money to purchase, which puts downward pressure on the inflation rate. Assume, for illustrative purposes, that the money supply grows at 6 percent a year and velocity is constant. Then, if annual economic growth is 3 percent, inflation must be 3 percent. (Actually, inflation must be 2.9 percent, which is approximately 3 percent). " Further, my peers antecedent that any kind of deflation is bad, is not entirely true. The truth, however, is that deflation need not be a recipe for depression. On the contrary, deflation can be a good thing, provided that it is the right kind of deflation. "Since the disastrous 1930s, economists and central bankers seem to have lost sight of the fact that there are two kinds of deflation, one malign, the other benign. Malign deflation, the kind that accompanied the Great Depression, is a consequence of shrunken spending, corporate earnings, and payrolls. Strictly speaking, even in this case, it is not so much deflation itself that is harmful as its underlying cause, an inadequate money stock. The hoarding of money, or its actual disappearance (the quantity of money in the U. S. Economy actually shrank 35 percent between 1930 and 1933), causes the demand for goods and services to dry up. In response, firms are forced to curtail production and to lay off workers. Prices fall, not because goods and services are plentiful, but because money is scarce. Benign deflation is something else altogether. It is a result of improvements in productivity, that is, occasions when changes in technology or in management techniques allow greater real quantities of finished goods and services to be produced from a given quantity of land, labor, and capital. Because an increase in productivity is the same thing as a decline in unit costs of production, a productivity-driven decline in the prices of finished goods and services need not involve any decline in producers earnings, profits, or payrolls. Lower costs are matched by correspondingly lower consumer prices, not by lower wages or incomes. Such productivity-driven deflation is actually good news to the average breadwinner. "(Selgin, George) So in the same ways my peer has stated deflation is intrinsically bad, I have shown that deflation can actually be beneficial to an economy(as it is a sign of growth) and is not entirely bad, but just like inflation, are any positives even relevant in light of the negatives of the outcome? It is logical to see that my peer agrees with this in dismissing deflation in much the same way. That positives are not relevant, as deflation can turn catastrophic as evidenced by the Great Depression, central bankers would agree as well, "Central bankers believe that deflation is always harmful, no matter its cause. They are convinced (1) that deflation is unfair to debtors, because it arbitrarily increases the real value of their debts; (2) that deflation means falling wage rates and increased un-employment; (3) that a stable, or slowly rising, price level is the best means of avoiding booms and busts; (4) that deflation may mean artificially high real interest rates, because nominal interest rates can never go below zero; (5) that deflation is painful to sellers, who will therefore resist cutting prices; and (6) that a variable rate of deflation must be a source of avoidable entrepreneurial confusion and error. In truth, none of those beliefs is valid so long as the deflation in question mirrors the economy's rate of productivity growth. "(Selgin, George) Furthermore, my peer makes a mistake in stating that the amount of money a country has, has little effect on the actual value in a fiat currency. That is far from the case, as over and over again we have seen, that the more money The Federal Reserve(U. S. Central Bank), the weaker the dollar becomes. Under fiat currencies value is purely speculative, "A little historical background is useful. By definition, fiatï¿½currency only has value because of government regulation or law; it is not convertible into anything, like silver or gold, and is declared as legal tender by the issuing country. When citizens and foreigners lose faith in a fiat currency, the value can turn to the price of confetti. "(Sherman, John) Common sense dictates that under a fiat currency, more money printed= devaluation of currency, devaluation leads to higher prices, higher prices = inflation. Under a fiat currency, inflation is inherently negative simply because inflation is actually the by-product of a reduced demand for the currency itself. Given the speculative nature of fiat currencies, a small rise in inflation can easily turn into hyperinflation. As I am short on space I will finish by stating that next round I will further elaborate how under a fiat currency hyperinflation is a likely outcome, and why the U. S. Dollar has not yet succumbed to it. --- Cato Policy Report, Vol. 21, No. 3 "A Plea for (Mild) Deflation" George Selgin, May/June 1999 "U. S. Dollar Is The Next Financial Shoe To Drop" Jonathan Sherman, Forbes. com, 2011 Cato Policy Report, Vol. 21, No. 6 "Does growth cause inflation? " November/December 1999.