Paul Krugman makes the case for a higher inflation target
But what really stands out, if you assume that discretionary fiscal policy won’t be there when you need it, is that this makes the case for a higher inflation target. Olivier Blanchard, at the IMF, made just that case a year ago(pdf). If we’d come into this crisis with 4 or 5 percent inflation, not 2, there would have been more scope for conventional monetary policy to act before hitting the zero lower bound.
Paul Krugman makes the case for a higher inflation target. This sounds a lot like the argument I have been making for a while, and it should. Paul and I largely agree on how the economy works.
We disagree on whether government spending can be targeted in effective fine grained ways, but that’s the point. Disagreement over the effectiveness of market versus public allocation of resources should not alter your view on the relationship between monetary policy and recessions.
2 comments
Comments feed for this article
Thursday ~ February 17th, 2011 at 4:49 pm
Johnnie Linn
Here I am again. As the charter Four-Month-Clubber, on October 17, 2010, I suggested that to see bigger changes in the economy, we needed four more months for fear factors to work themselves out. A lot of them have worked themselves out. The Repubs took the House. The tax cut was left in place. The State of the Union address has been given.
But I might have to check out for another four months. The government has not petitioned for a stay on the ruling by Judge Vinson on the unconsitutionalility of the entirety of Obamacare. And there has been a new surge in demand for ammuniton since the Tucson shootings.
I will drop in again on June 17.
Friday ~ February 18th, 2011 at 12:17 pm
Johnnie Linn
Update:
The government has filed a “motion to clarify” in Florida v. Sibeluis, the case ruled upon by Vinson. In taking this intermediate step, the government seems to be saying that it is unsure of its ground, but is counting on the possibility of an over-generous response by Vinson that might relieve the government from having to contend on some risky points.