ANOTHER ONE: Larry Summers Calls for More Price Inflation

Larry Summers

Former Treasury Secretary Larry Summers writes in the Financial Times.

[P]olicy should be set with a view to achieving modestly above-target inflation, perhaps 2.3 or even 2.5 per cent, during a boom with the expectation that it will decline during the next recession. A higher inflation target would entail easier policy than is now envisioned.

As I have been pointing out in the EPJ Daily Alert, most mainstream Keynesian economists have been lulled into thinking that because there has been no aggressive price inflation in recent years that it can't occur with more Fed printing. The reality is that a major spike in price inflation could occur at any time.

Further, the idea that price inflation must decline during a recession ignores the very real periods when stagflation was a major problem, that is, high inflation and a recession simultaneously.

It is as if Summers and others like him have a strange brain disease, where they are sleep walking through life and forget and then ignore any data older than 2 to 5 years back.

 -RW