A Benjamin Cole post
Except among naval historians, it is usually forgotten that the mighty 16th century Spaniards, smart, intrepid and globe-girdling, had to lose not one but several sea battles against lighter, but well-armed British ships before the Iberians gave up their fleet of heavy galleon-rammers, many of which were on sea bottoms anyway.
Which brings up Señor Charles Plosser, Fed FOMC board member, Philly Fed President, and an accredited macroeconomist.
As Marcus Nunes has already pointed out in this space, Plosser appears to engage in some nautical-chart historical revision in a recent New York Times talker; Plosser now avers he held steady in the face of oil inflation back in the day of crude spikes, and so the Fed should stay steady, or even raise rates, with deflation now in the offing.
What many Fed observers recall is the U.S. central bank raising rates to “fight” higher global commodity prices in 2006-2007 (helping to provoke the Great Recession), and then Plosser (alas, on the record) arguing for more rate hikes in 2008. As Plosser has ever since, and no QE2 or QE3 either.
The Phillips Curve
Okay, sad enough. It gets sadder still.
In the NYT Q/A, Plosser also (and evidently triumphantly) declares the Phillips Curve dead. I actually agree with this—and blogger-economist Tim Duy has run charts (duped here by me) that show the Phillips Curve has become prone, the Phillips Phlat-Line.
My take-away from the Phillips Phlat-Line is that the Fed has great latitude to stimulate; the consequent real output and unemployment gains will have minimal impact on inflation. That is the record since the 1990s. And also now—demand-pull inflation is nowhere on horizon.
Plosser, in contrast, stonily concludes that higher inflation will not result in lower unemployment, so the Fed can engage in monetary asphyxiation without any guilt feelings. Plosser, btw, has written that the Fed should have a goal of deflation.
The No-Show Inflation (and Overrated) Bogeyman
In the end of his NYT swan song, Plosser is forced to raise future bogeyman specters to validate his tenure of misery at the Fed, when the U.S. economy underperformed every other era in postwar U.S. history.
Was Plosser justified in calling for the monetary noose at every occasion, even if inflation is still-yet a no-show (and even if the costs of mild inflation are more than offset by the benefits thereof)?
Plosser, sterner than even Spanish Armada admirals, is unbowed, even as he bows out. As he goes overboard, Plosser shouts from the dingy about the inflation bogeyman of the deep, and intones darkly about the pending tsunami of costs attached to a large Fed balance sheet (and what are the costs? No one ever says).
There will be consequences, Plosser yells from a cresting wave.
Sail away, Plosser, sail away. If central bankers could be made to walk the plank….