ortunities for sophisticated institutions to unfairly take advantage of the average individual, in many people's minds. Inflation can increase the complexity of evaluating financial assets, from CDs and insurance policies to stocks and bonds. This shifts the distribution of power in the financial marketplace to the more sophisticated and knowledgeable actors to the detriment of the average person, in this view. Thus, the government might "forget" to change the tax brackets after an inflationary episode, so the average person would end up paying higher taxes. Similar issues of getting confused or fooled can operate within firms. Some monetary policy makers have hypothesized that managers may be lulled into complacency about profits by increases in the general price level. In his testimony last year before Congress, Federal Reserve Board Chairman Alan Greenspan observed that firms' productivity may rise more quickly with price stability, as the "inability to pass cost increases through to higher prices provides a powerful incentive to firms to increase profit margins through innovation." Inflation thus may weaken our judgment about how well we are doing, both as individuals and as firms. People's immediate concern is with how their incomes hold up with changes in their expenses. Businesses care about how the prices of their products do in relation to their costs. Americans' recent memory of high inflation stems from the 1970s, a time when changes in relative prices, specifically the spike in oil prices, combined with a rise in the general price level. This combination of relative and general price changes in the 1970s, in Shiller's view, confused many people's perception of inflation. The two oil shocks did result in higher inflation. But equally damaging was the relative price change. Oil was used...
