Friday, November 1, 2013

The Return of Inflationism?

By Mario Rizzo

The Fed has become desperate, not because the American economy is currently falling apart, but because the economy has stubbornly failed to respond well to the policies of the “best and the brightest.” And now, as if to welcome the impending chairmanship of Janet Yellen, stories are surfacing in various places about the growing consensus inside and outside of the Fed for inflation. There is not enough inflation to stimulate adequate economic growth. Just a little more, or maybe even a lot more (perhaps as high as 6 percent) is needed as Ken Rogoff of Harvard is suggesting.

The arguments being used today are not exactly the same as those of the 1970s, yet I have the feeling that I have been here before.  It is important to distinguish theory from what policy economics is about. Policy economics often comes down to rather simple ideas. The real world has a way of making a mockery of today’s sophisticated macroeconomic theory. For one thing, policy has to be relatively simple if it is to be transparent.

Read the rest here.

1 comment:

  1. Rizzo writes: "To discuss the roles of the massive expansion of food stamps, unemployment insurance extensions, easier disability eligibility, upcoming Obamacare costs and uncertainty, and so forth"

    He can't be serious. That's all we've heard for 5 years. Google uncertainty unemployment and you get 9,760,000 results.

    Uncertainty, Unemployment, and Inflation