1. We should aim for a long-term inflation rate of four or even five percent so that the Federal Reserve is much less likely to hit the "zero bound" and lose confidence in its own ability to shape the economy-wide demand picture.Bottom line: Yglesias doesn't understand supply and demand. There is never an "economy-wide demand picture" problem. Markets clear. No money printing needed. Yglesias has been sucked in by government central bank apologists. They have dished all kinds of insane theories in front of him and he has bought in without checking the framework. He has taken the nonsense to a new level with his call for long-term 5 percent inflation. Hey Matt, who gets the new helicopter money first, me or you?
2. We should make specific statutory provision for Fed injection of "helicopter money" into the economy. The metaphysics of fiscal vs monetary policy are less important than the fact that the Fed has the right institutional setup to conduct a joint fiscal-monetary action when needed. A Fed that can order money-financed payroll tax cuts that have zero impact on the deficit is never going to "run out of ammunition" in the war on demand shortfalls.
(ht John Duncan)
Any time I read something from Slate, I check for the green Onion logo at the end - just to be sure. In other words, you can be assured that pretty much anything advocated in that online rag involves more spending, more bureaucracy, and in this case, a boat load of money-printing. Paying for all the profligacy happens at some future date...or they can tax the rich, or some such nonsense.
ReplyDeleteIt takes a great deal of effort to make Bernanke look timid, but the snake oil salesman at Slate are usually up to the task. If there is justice in the world, I'll meet this economic ignoramus in a bread line in the not-too-distant future and ask him about how his 5% inflation idea is working out for him.