Deflation targeting @2%

“Neo Fisherite” John Cochran writes in the WSJ “Who’s Afraid of a Little Deflation?”:

According to the conventional worldview, the economy is inherently unstable. Central banks control inflation the way you balance an upside-down broom, with interest rates on the bottom and inflation on top. Central banks have to actively move interest rates around to keep inflation and deflation from breaking out. And if they want more inflation, they must temporarily move interest rates the wrong way, let the inflation increase, and then move quickly to stabilize it.

Hence the zero-bound worry. When interest rates hit zero and the Fed can’t move the broom handle any more, the top of the broom must topple into deflation. Except we hit the zero bound, and almost nothing happe

“The danger now is inflation,” warned University of Chicago economist and Paul Ryan dinner companion John Cochrane in 2009. He warned of this again in 2010.

And again in 2012(“Inflation Should Be Feared”).

Inflation has stayed very low. And look, here is John Cochrane in today’sWall Street Journal editorial page, no longer warning of inflation. Now he is arguing that deflation might be coming, but it’s not so bad.

Yes, that is Professor Cochrane tearing down the goalposts and moving them several miles back.

ned. Maybe the economy isn’t so inherently unstable and in need of constant guidance after all.

Bottom line? Relax. Every few months we hear a new “biggest economic problem” from which our “policy makers” must save us. Wait for the next one.

Maybe being 1990-2012 Japan is every country´s dream (except Japan´s)!

Update: And here´s Jonathan Chait on John Cochrane the “inflacionista”:

“The danger now is inflation,” warned University of Chicago economist and Paul Ryan dinner companion John Cochrane in 2009. He warned of this again in 2010.

And again in 2012(“Inflation Should Be Feared”).

Inflation has stayed very low. And look, here is John Cochrane in today’sWall Street Journal editorial page, no longer warning of inflation. Now he is arguing that deflation might be coming, but it’s not so bad.

Yes, that is Professor Cochrane tearing down the goalposts and moving them several miles back.

 

One thought on “Deflation targeting @2%

  1. Yes, if you happen to be unemployed, just relax!

    If trillions of dollars of output is lost, just relax!

    “We hit zero bound, and almost nothing happened.” Yes, if you were unemployed, nothing happened too!

    In general, I dislike argument by impugning the source.

    But the fact that Cochrane has a safe sinecure at an academic institution—might that play a role in his lack of concern over generating a more-rapid recovery?

    And if the Fed had done nothing in 2008—would the USA have seen the 75% decreases in stock and property values (as was seen in Japan)?

    Ironically, there is a time for the Fed to “do nothing”—when the economy is roaring, there are “labor shortages,” and commodities prices are rising. Given the fact that modern economies are no longer inflation-prone, that would be a time for the Fed to “do nothing.”

    My guess is that Cochrane and & Co would be screaming for a tighter Fed at that point.

    You see, a do-nothing Fed is only good when the economy, asphyxiated, shows little sign of life.

    Yes, prone is a stable condition. Is that really a place for the US economy?

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