So a Market Monetarist, a New Keynesian and an MMTer walked into a bar... Actually there is a piece about inflation from each. The Market Monetarist David Glasner notes that there's a feeling among some-often among some too close to policymaking power for comfort-that inflation is a terrible, bloodsucking vampire against which we must be constantly, and eternally vigilant:
"Interestingly enough, I happened to catch a piece (“Should we bring inflation back from the dead?”) on American Public Radio’s “Marketplace” last evening. After asking David Blanchflower of Dartmouth College and Kevin Jacques of Baldwin Wallace University about the potential benefits of moderate inflation in the current environment, reporter David Gura turned to Marvin Goodfriend, formerly of the Richmond Fed, and now at Carnegie-Mellon, for a contrary view. Here is how Goodfriend explained why more inflation would not be a good thing.
Glasner argues that the real fear should be that inflation is too low, now much closer to 1% than 2%. Hard to make the argument that we're close to being overheated. This might also be another point against the Tyler Cowen Great Stagnation theory where we're now close to full employment.
"Under both elements of its dual mandate, the FOMC is unambiguously obligated to increase the rate of monetary accommodation now being provided. The FOMC asserts that unemployment is elevated; it also asserts, notwithstanding a pathetic attempt to disguise that obvious fact, that inflation is below its target. Both conditions require increased monetary expansion. There is now no trade-off between inflation and unemployment, and no conflict between the Fed’s two mandates. So why can’t the Fed do what it is plainly obligated to do by current legislation? Pointing a finger at the President and Congress cannot absolve the Fed of its own legal obligation not to tolerate an inflation rate below that consistent with price stability when unemployment is elevated. Is there no one capable of extracting from the Chairman of the Federal Reserve Board an explanation of this dereliction of duty?"
Still, the Fed is right about opposing the sequester unlike Sumner.
http://diaryofarepublicanhater.blogspot.com/2013/05/sumners-nuanced-support-of-austerity.html
We also have New Keynesian Paul Krugman-though he still loves IS-LM of course-unhappy with the current low and shrinking inflation rate.
"So all those inflation fears were wrong, and those who fanned those fears proved, in case you were wondering, that their economic doctrine is completely wrong — not that any of them will ever admit such a thing."
So the phenomenon of low inflation seems to be an international phenomenon. Our problem isn't inflation but the inordinate fear of it-to paraphrase Jimmy Carter-one who knows from firsthand what inflation really looks like
"Interestingly enough, I happened to catch a piece (“Should we bring inflation back from the dead?”) on American Public Radio’s “Marketplace” last evening. After asking David Blanchflower of Dartmouth College and Kevin Jacques of Baldwin Wallace University about the potential benefits of moderate inflation in the current environment, reporter David Gura turned to Marvin Goodfriend, formerly of the Richmond Fed, and now at Carnegie-Mellon, for a contrary view. Here is how Goodfriend explained why more inflation would not be a good thing.
Of course, resurrecting inflation is not risk-free. Economist Marvin Goodfriend says this kind of thinking could lead the economy to overheat: “If a little inflation is good, maybe a little more inflation is better.” It is something that is hard to control.
Goodfriend tells his students at Carnegie Mellon University to remember something.
“Inflation doesn’t die,” he says. “It’s like a vampire.”
http://uneasymoney.com/2013/05/02/the-vampire-theory-of-inflation/You can vanquish it with “determined policy,” Goodfriend explains. Inflation will creep back into its coffin. And then, when you least expect it, it can come back with a vengeance.
Glasner argues that the real fear should be that inflation is too low, now much closer to 1% than 2%. Hard to make the argument that we're close to being overheated. This might also be another point against the Tyler Cowen Great Stagnation theory where we're now close to full employment.
"Under both elements of its dual mandate, the FOMC is unambiguously obligated to increase the rate of monetary accommodation now being provided. The FOMC asserts that unemployment is elevated; it also asserts, notwithstanding a pathetic attempt to disguise that obvious fact, that inflation is below its target. Both conditions require increased monetary expansion. There is now no trade-off between inflation and unemployment, and no conflict between the Fed’s two mandates. So why can’t the Fed do what it is plainly obligated to do by current legislation? Pointing a finger at the President and Congress cannot absolve the Fed of its own legal obligation not to tolerate an inflation rate below that consistent with price stability when unemployment is elevated. Is there no one capable of extracting from the Chairman of the Federal Reserve Board an explanation of this dereliction of duty?"
Still, the Fed is right about opposing the sequester unlike Sumner.
http://diaryofarepublicanhater.blogspot.com/2013/05/sumners-nuanced-support-of-austerity.html
We also have New Keynesian Paul Krugman-though he still loves IS-LM of course-unhappy with the current low and shrinking inflation rate.
"So all those inflation fears were wrong, and those who fanned those fears proved, in case you were wondering, that their economic doctrine is completely wrong — not that any of them will ever admit such a thing."
"And, at this point, inflation — at barely above 1 percent by the Fed’s favored measure — is dangerously low.:
Such low inflation is both a sign of continued weakness in the economy and also a vicious cycle that feeds on itself:
"Why is low inflation a problem? One answer is that it discourages borrowing and spending and encourages sitting on cash. Since our biggest economic problem is an overall lack of demand, falling inflation makes that problem worse."
"Low inflation also makes it harder to pay down debt, worsening the private-sector debt troubles that are a main reason overall demand is too low."
"And this brings us to a broader point: the utter folly of not acting to boost the economy, now."
"Whenever anyone talks about the need for more stimulus, monetary and fiscal, to reduce unemployment, the response from people who imagine themselves wise is always that we should focus on the long run, not on short-run fixes. The truth, however, is that by failing to deal with our short-run mess, we’re turning it into a long-run, chronic economic malaise."
"I wrote recently about how, by allowing long-term unemployment to persist, we’re creating a permanent class of unemployed Americans. The problem of too-low inflation is very different in detail, but similar in its implications: here, too, by letting short-run economic problems fester we’re setting ourselves up for a long-run, perhaps permanent, pattern of economic failure."
Finally, we come to Australian MMTer Bill Mitchell. Australia like us has very low inflation and yet policymakers aren't responding by doing the necessary stimulus either:
"The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the March 2013 quarter today and while the inflation rate rose a little, this was mainly due to the fact that the base March-quarter 2012 was unusually low, thus distorting the annualised figure. When we continue the most plausible recent trends the annual inflation rate is below 2 per cent and falling. The Reserve Bank of Australia’s preferred core inflation measures – the Weighted Median and Trimmed Mean – are now well within the inflation targetting range and are probably trending down. This suggests that the RBA will probably consider the inflation outlook to be benign or “too low” and will instead have to shift their focus to the failing labour market, which in the last month showed signs of considerable deterioration after a flat 12-15 months. The inflation trend clearly contradicts the commentators who have been predicting the opposite on the basis of the (modest) rise in the budget deficit over the last few years as the downturn hit Australia. Their standing in the predictions stakes continues to be dented by the data. The evidence is suggesting that the economy is slowing under the weight of the federal government’s obsessive pursuit of a budget surplus. The benign inflation outlook provides plenty of room for further fiscal stimulus."
Meanwhile, the output gap in Australia is estimated as being 2%.
In the Australian Senate Standing Committee on Economics – Questions on Notice (May 29-31, 2012), the Treasury was – Questioned – by the Queensland Greens Senator Larissa Waters about the Government’s obsession with achieving a budget surplus in the coming fiscal year.
"Among other things, the Senator asked:
The OECD’s latest Economic Outlook estimated that there is an ‘output gap’ of around 2 per cent of GDP in Australia; that GDP is below trend. Why then is there an economic need for a contractionary fiscal policy?
"The Senator’s questions were dismissed by the Treasury in the hearing in this way:
These issues have been addressed in the Secretary’s Annual post-Budget Address to the Australian Business Economists on 15 May 2012.
So the phenomenon of low inflation seems to be an international phenomenon. Our problem isn't inflation but the inordinate fear of it-to paraphrase Jimmy Carter-one who knows from firsthand what inflation really looks like
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