The bottom line

Bernanke has given serious thought to the Krugman-Rogoff argument. One obstacle is practical. Fed policy works, in part, by getting the market to do the Fed’s work (if the Fed is buying bonds, traders who want to be on the same side of the markets as the central bank will buy bonds too). But any policy adopted by less than a 7-to-3 majority by the Fed’s Open Market Committee would not be viewed by markets as a credible policy, likely to endure, and Bernanke is not guaranteed to get this margin today. “No central banker would do it,” Mankiw says of raising the inflation target; the political reaction would be too severe. (When Mankiw, a Harvard economist, wrote a column raising the possibility of a higher inflation target, Drew Faust, the university’s president, received letters urging her to fire him.)

That is from Roger Lowenstein’s profile of Ben Bernanke, interesting and excellent throughout.

Comments

Inflation on non-durable goods is what 8% now? It hasn't caught up on durable goods because we are still in a recession so people are holding back on purchases.

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FOMC composition is viewed as a proxy for Fed credibility now? How things have changed since the era of the Maestro.

For the better IMO

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Again, how are people who didn't see this housing-banking (I said banking) crisis coming, or how bad it would be so positive that it would have been so much worse?

The "potential" that they speak of when they say "the economy running at potential" involved an unsustainable housing boom, which when it ended is why we are here.

When PK pined for a new housing boom to get us out of the dot-com recession, he was in a roundabout way discussing a sustainable pattern of specialization and trade. He just forgot about the sustainable part.

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From the Department of Questions Economists Apparently Never Ask: Who profits from deflation. Could it be they're opposing higher inflation?

The answer to your second question is yes. The converse is also true.

The answer to your first question is: Lenders. I assume you know these answers and I fail to see your point. I sense that you have a negative opinion of them, maybe? But other than expressing your preference, I fail to see your point.

Of inflation, we would do well to remember that it is a process, not an instantaneous phenomenon. It will help those whose revenues are inflated and whose costs are not. The last people in line to realize these higher prices are those who do not have the benefit of the lower costs (By definition). I think most of us are at the end of this process, regardless of our debts.

The point is, as Lowenstein points out where economists almost never do, is there are winners and losers. There are always winners and losers.

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My point is that discussing this in neutral terms is dishonest.

The issue should be characterized truthfully so that voters can make a correct assessment. For example: If we deflate the currency Banks and others who are owed money will be advantaged because they will end up being paid more than they are owed. If we allow inflation to increase homeowners and others who owe money will be advantaged because they will end up paying less on their debts than they owe.

Let's start the discussion that way and then see where we end up.

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"When Mankiw, a Harvard economist, wrote a column raising the possibility of a higher inflation target, Drew Faust, the university’s president, received letters urging her to fire him" Does anyone have more info on this? Who writes these sort of letters?

Von Mises institute, and anyone who reads zerohedge

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old people, people who where badly affected by the inflation in the 70's

People who (1) have lots of free time (2) good executive function and (3) don't understand tenure

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What Comrade Bernanke should do is visit a first-grade class and give the kids a lesson they'll long remember. His props would consist of a calculator, a dollar, and two quarters (or slide show presentation). He'd say, "I want inflation to be two percent annually." Then, holding the dollar in one hand and the calculator in the other, he'd say, "If inflation is two percent each year, in thirty-six years, or by the time you're in your 40s, the dollar would be worth fifty cents (holding up the two quarters). That's true because of the rule of 72."

Why, oh great freedom defender, is this a big deal?

@will,
It isn't a big deal, and it is easy to prove. Just take all your personal assets and give half of it away. No big deal, right?

Yes, it's extremely cruel to everyone who stuffs cash under a mattress for 50 years.

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Rofl. I suppose if all your assets are cash, you won't have a mattress to stuff it under. You can understand that inflation does not erode the value of your car or house, right?

Well, no, it increases their value by raising the value of all durable goods as inflation hedges.

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Inflation is a spur to investment, a whip and a scourge to those who would take their pile of money and rest on it. Because it forces holders of money to lend to entrepreneurs, it's socially useful.

That's an example of what I call generally accepted insanity. There are things where I wonder "in what other area of life would this reasoning be accepted?" Applied to most other things most of us would say that is crazy.

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Lots of hand waving. Why is that insanity? Greg seems spot on here.

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This is not "anywhere, everywhere, and to any degree".

But 2% inflation is hardly something to get riled a bout. It offers a buffer against deflation and makes debt transactions work a little better.

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Inflation is a spur to investment.

Is it really? Never heard of a premium for inflation expectations?

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The problem with the FOMC is that is run by economist and not by palaeoanthropologist. Jewish ones a that.

I have no idea what this is supposed to mean, though i have wondered about the effects of having mostly academics and public servants on the FOMC. Compared to say http://www.rba.gov.au/about-rba/boards/rba-board.html

"Public Servant" is a euphemism for greedy rent seekers.

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Moderator please delete the above

I don't know if you are continuing on with the joke, but I am pretty sure that the original comment is a parody of some neo-nazi spambots that have been posting in the comments. Paleoanthropologist spam bots.

Poe's Law again. If it's a parody it's indistinguishable from the real thing and hence offensive.

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