pervasively to fuel machinery and other technology operated by workers; so when the price of oil went up, the productivity of many American workers fell and their real wages shrank. People today may confuse the experiences of the 1970s -- falling wages, gas rationing, and the redistribution of income -- with the effects of any rise in the general price level. Overall, Shiller's respondents uniformly view inflation as harmful -- that it lowers standards of living by pushing up prices before wages and pensions, and that it facilitates deceptive behavior. Because inflation may benefit some people, say by its redistribution of wealth from creditors to debtors, Shiller was surprised that not a single respondent mentioned any benefit gained due to inflation. DISTORTED BEHAVIOR Economists tend to emphasize that inflation can do economic damage by distorting investment and consumption decisions. Distortions result first from households' and businesses' uncertainty about inflation's future course, and second from inflation's interaction with the U.S. tax code. Inflation's interaction with personal income taxes, for example, can distort decisions about how much income to spend on housing. This interaction plays out with owner-occupied housing, where mortgage interest payments are deductible. Inflation gets built into nominal interest rates; so even a moderate rise in the price level increases this deduction. And housing services, that represent part of the return to housing investment, escape taxation. Moderate to high inf...
