An inflation target is at best meaningless and at worst downright damaging!

This is what I gathered from this John Kay piece in the FT: “The second richest man of all time was poorer than us”:

Nathan Rothschild was the richest man in the world when he died in 1836. A list compiled by Forbes magazine, ranks him as the second richest man who ever lived – ahead of John D Rockefeller, and way ahead of Mexican telecoms mogul Carlos Slim and Bill Gates of Microsoft. (The richest was a Roman general who was the power behind Julius Caesar’s throne.) The figures used by Forbes are, of course, adjusted for inflation.

But what does “adjusted for inflation” mean? Rothschild died of septicaemia following an abscess, and in spite of buying the best medical attention available in Europe at the time. He had never been in a car, a train or an aircraft, nor visited the Taj Mahal, heard recorded music, seen a film, made a phone call or used electric light. Nor (despite the legends about the killing he made from inside information) could he have heard about the outcome of Waterloo until many hours after the battle was won. And he was dead at the age of 58 from an illness that could today be cured by an antibiotic costing a few pence.

3 thoughts on “An inflation target is at best meaningless and at worst downright damaging!

  1. An excellent example of why slavish devotion to stability of an index of prices is crazy. There is no way to compare living standards today to those of 40 years ago, what with better medical care, smartphones, Internet, much more fuel efficient autos etc.

    An index is only roughly right, for a few years running.

    Much better to concentrate of real output, and then a rate of inflation that is tolerable. Of course, NGDPLT is best, but if not that, then any moderate inflation rate is fine as long as real output is going up.

  2. Right now, Kevin Erdmann and I are having a long conversation about stock valuations in this comments section:

    http://idiosyncraticwhisk.blogspot.com/2014/11/october-employment.html

    My argument: future monetary policy will still have an enormous impact on stock valuations the next three or four years.

    Question: What are some of Benjamin Cole’s best posts indicating that there’s still lots of slack in the U.S. economy and we could have much faster RGDP growth if only the Fed would deliver faster NGDP growth?

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