Saturday, February 7, 2015

The Confusion about Inflation, Price Stability and Deflation

Scott Sumner is the Ralph G. Hawtrey Chair of Monetary Policy at the Mercatus Center at George Mason University, where he is the director of the Program on Monetary Policy.

He writes at his blog:
Here I have the same problem as with most hawkish pundits, it’s not clear what they are trying to achieve, and how they expect to do so.  When inflation is high they say we need price stability, and hence tighter monetary policy.  And when prices are falling (as in Switzerland) you’d expect them to say we need price stability, and hence easier monetary policy.  But they don’t.  Instead they criticize monetary policy for being too expansionary, for papering over real problems, even if that monetary policy was already producing deflation.  That makes no sense to me.
Thus, Sumner doesn't seem to understand the basic Austrian School business cycle theory insight that all increases in money supply via central bank printing distort the economy---regardless of what they do to the price level.

Also, he mischaracterizes, or is not considering those, who never call for a  stable price environment, but simply argue that central banks should always and everywhere stay out of the money printing business.

Sumner appears to have the typical mainstream fixation with stable prices. He seems closed off to considering the positives of  a world of falling prices, a world which is  now limited to mostly big screen televisions and  personal computers.

For more on the the benefits of deflation, see: Murray Rothbard and the Deflation Bogey.


1 comment:

  1. In the minds of statists, "stable" is defined as 2% debasement each and every year.

    Of course, this is a purely arbitrary number. Much like the unemployment rate reaching 6.5% (although thoroughly manipulated), the inflation target has one goal in mind: shoveling newly created currency towards Wall Street while allowing the bankrupt government the ability to inflate away its gargantuan debts.

    These psychopaths won't stop until they've destroyed the dollar. They don't seem to be bothered with the possibility of wiping out the middle class.