Sumner Explains Bernanke

      His seems to be the most charitable view yet with regard to Bernanke's comments in asnwer to Krugman last week that are in any way plausible.

       http://www.themoneyillusion.com/?p=14082

      Sumner argues that there's every reason to think that Bernanke would prefer slightly higher inflation right now. However he may legitimately differ from Krugman in wanting a higher long term inflation target.
    
       " One possibility is that this answer should be seen as a response to Krugman’s argument that we should not just aim for slightly higher than 2% inflation in the short run, but should actually raise the long term inflation goal to something like 4%, in order to lower real interest rates, and also to make liquidity traps less likely. Bernanke probably sincerely opposes that policy, but that doesn’t mean he wouldn’t prefer to see a bit more NGDP growth and inflation right now."

        Of course, if you believe in all this talk about an output gap or Tyler Cowen's Great Stagnation, then we would need higher inflation going forward just to make up the gap and bring us back to historical NGDP. In any case it is possible. Incidentally to those who find a 4% inflation rate unreasonably high, bare in mind that even during the Great Moderation, certainly during this Bush years we saw an inflation trend that was over 3%. Of course I wouldn't mind a permanent 4% inflation target but then I'm something of an "accelerationist" anyway, I'd be happy to have a long term NGDP rate of around 7.5% or 8%. Most of the MMTer's are more skeptical of inflation than I am. Krugman may be with me on this though.

      "In late 2010 he ran into a firestorm when he called for higher inflation. At the time he was merely calling for boosting core inflation up from 0.6% to 2.0%, which should have been incredibly uncontroversial—even the hawks should have applauded. Now imagine he says “we are going to try to push inflation a bit above 2%.” That actually is the implication of the dual mandate, but nonetheless all hell would break lose. I think he might honestly believe that it could be a setback for the doves. He’d rather move quietly in that direction."

       He does say though:

       "Without the criticism of Bernanke from us market monetarists, and without the criticism of Bernanke from Krugman, DeLong, Avent, Yglesias, Duy, Thoma, etc, etc, Ben Bernanke’s job would be much harder. Without that criticism, all the pressure on the Fed would be coming from the right, and would be pushing the Fed in exactly the opposite direction from where Bernanke would like to go. We are helping him, whether he knows it or not, and regardless of how annoying he finds our criticism."

       So Sumner has at least given us the best case scenario-he desires higher inflation now but not permanently as Krugman may have suggested. The worst case scenario is that he will resist deflation but do nothing to give us a little more inflation because he worries that the Fed could lose it's "inflation fighting credibility."

      Interesting that Sumner indentifies as himself as not being on the Right. Don't know if I agree with that or not.