This is based on a comment I made here.
Perhaps we need a bit of Socratic dialogue with the inflationphobics.
Q: What has caused more damage; entrenched inflation (the 1970s) or massive deflation (1929-32)?
A: Deflation. But that is not what we face.
Q: What has caused more damage; entrenched inflation (the 1970s) or unexpected disinflation* during a leveraging crunch (2008-?).
A: But inflation is evil.
Q: Why is inflation bad?
A: Because it distorts private decisions.
Q: Does it do that making basic parameters for judgement unreliable?
A: Yes.
Q: So it is about creating a clear and reliable framing for private decisions?
A: Yes.
Q: So, a central bank should provide a reliable framework for private decisions?
A: Yes.
Q: So it is about framing expectations in a credible way?
A: Yes.
Q: So, what is more important to people, expectations about income or expectations about prices?
A: [Some obfustication]
Q: So, should not a central bank seek to credibly generate expectations about income?
A. [Some more obfustication]
Q: In a highly leveraged age with many wages set by contracts operating across time and a range of "sticky" prices, which is more important to people, expectations about money income or "real" income?
A. [Even more obfustication]
Q: So, would not a clear target about aggregate income (aka NGDP aka Py) create a framework to anchor expectations in what people actually care about?
A: [Meltdown]
* Yes, other things are going on, but the surreptitious disinflation was when the US economy really nosedived.
ADDENDA Lars Christensen was good enough to repost the comment as a blog post.
Something is going on in Iran, explosions near nuclear works: This post
will be updated as information comes in
-
1. Explosions in Iranian city near Nuclear facilities Unconfirmed Reports
now of Explosions near the City of Isfahan in Central Iran, which is Home
to one ...
57 minutes ago
No comments:
Post a Comment