Why can't inflation be stopped by just printing less money?
Why can't inflation be stopped by just printing less money?
It can, but in a modern capitalist system, inflation has to be weighed up against economic output. It’s easy to bring inflation to zero, but that would also result in stagnation, which if not handled properly will result in recession.
Inflation of around 2% annually is considered healthy, as that gives enough economic leeway to invest (note: not necessarily “invest” as in buying stocks. We"re talking about bsinesses investing in upgrading own factories, etc) in a manner that is net positive for an economy, usually resulting in increased employment and wage growth.
The problem is when inflation outpaces wage growth and economic output, that’s when it becomes an actual problem. See current state of Russia as an example.
The usual tool to curb inflation is to raise interest rates, so that less money is circulated. This does however come with its own problems, as it squeezes those with loans (most of us), resulting in decreased consumer spending/demand, which tends to slow down the economy, and this too can result in stagnation of not handled properly.
So, what happens if you stop printing money AND increase interest, in other words, handling it improperly? Stagflation - a stagnating economy with inflation still way too high. It’s basically the worst of both worlds (cue Hannah Montana theme), and it rarely (if ever) ends well for a country.