[yummyfajitas]

Basically, what progressive economists were (and still are) arguing is that for most people, X% inflation is better than an X% decrease in income. The reason is that most people have long-running contracts forcing them to pay nominally fixed amounts, such as rents or mortgages.

No, this is not the reason Keynesians argue for inflation. Keynesians believe that nominal wages are sticky - people will not work at a nominal wage lower than their pre-crisis wage.

Inflation is a way of reducing real wages (a necessary step in the recovery) while allowing people to maintain their prior nominal wage.

Strangely, a large number of people who support Keynesian economics also support measures aimed at increasing wage stickiness (unionization, minimum wage laws, etc). This last fact is something I can't figure out.

[nhaehnle]

There are actually two separate arguments here. What you are saying is one argument: that people resist nominal price decreases (e.g. workers resist nominal wage decreases). What I was saying is the other argument: people are right to resist nominal price decreases, because inflation is better for them than the alternative. Both arguments have been made (the second argument may be less known) and I would agree with both of them.

There really isn't a conflict between being supporting Keynesian-style anti-cyclical government behaviour (this is what most people mean when they say they support Keynesian economics) and resisting nominal wage decreases.