Why"setting an inflation target is one of the most important goals [for] progressives and liberals"

[Derechos]

snip

Those focused on monetary policy are looking at ways to get wealth to those with the most, the “job creators” who lead the economy, in the hope that it’ll encourage them to start the economy again. More failed supply-side economics when then economy is in pieces.

I don’t think that’s the only or right way to look at it. So first, Yglesias describes monetary policy not as a mechanism for getting money into rich people’s hands but instead increasing “the cost of hoarding cash.” That’s a key distinction – we want pressure on the rich and wealth-holders to do something with their wealth. Invest it, build and not just stockpile it. This isn’t making the wealthy feel happy so they’ll invest, it is putting pressure on the wealthy. Inflation transfers real resources away from those whose income is money and towards other agents in the economy. It’s not more supply-side nonsense.

And that gets to Yglesias’ third point, which Robins skips, about why we want an inflation target: “Last, since mortgage debt is denominated in nominal terms, a faster rate of inflation would speed the deleveraging process and let households repair their balance sheet.”

That’s technical language. In generic terms, monetary policy balances the relationship between savers and borrowers. For political purposes, it shifts the power between creditors and debtors. Or those with money and power versus those who are in a serfdom of bad debts gone wrong. Given the concentration of wealth at the top and the indebtedness of everyone else, it’s arguable one of the most important political projects out there.

From a series of legal codes favoring creditors, a two-tier justice system that ignore abuses in foreclosures and property law, a system of surveillance dedicated to maximum observation on spending, behavior and ultimate collection of those with debt and beyond, there’s been a wide refocusing of the mechanisms of our society towards the crucial obsession of oligarchs: wealth and income defense. Control over money itself is the last component of oligarchical income defense, and it needs to be as contested as much as we contest all the other mechanisms.

http://rortybomb.wordpress.com/2011/07/15/a-response-to-corey-robin-on-the-political-idea-of-monetary-policy/

[dkf]

1. People stay in cash because of fear.

If they felt it was safe to invest then of course they would.

But people know things are still screwed up.

And inflation decreases real wages. With unemployment so high there is not much incentive to give people raises so forcing investors to use cash has the side effect of hurting the little guy. Is that really what we want?

[Derechos]

2. The argument for higher inflation is to give us more wiggle room with our

macroeconomic policy tools to help sitmulate growth.

So, terrible growth prospects; low inflation; oh, and low interest rates, with no sign of the bond vigilantes. Ordinary macroeconomic analysis tells you very clearly what we should be doing: fiscal expansion and monetary expansion by any means we can manage; in fact, the case for a higher inflation target pops right out of just about any model capable of producing the kind of mess we’re in.

And what are we talking about in policy terms? Spending cuts and an end to monetary expansion.

I know the arguments — fear of invisible bond vigilantes, fear that 70s-style stagflation is just around the corner despite the absence of any evidence to that effect. But why do such arguments have so much traction, while everything economists have spent the last three generations learning is brushed aside?

http://krugman.blogs.nytimes.com/2011/07/16/the-political-economy-of-the-lesser-depression/

See also- Rethinking Macroeconomic Policy (pg. 9)

B. Low Inflation Limits the Scope of Monetary Policy in Deflationary Recessions

When the crisis started in earnest in 2008, and aggregate demand collapsed, most central
banks quickly decreased their policy rate to close to zero. Had they been able to, they would
have decreased the rate further: estimates, based on a simple Taylor rule, suggest another 3 to
5 percent for the United States. But the zero nominal interest rate bound prevented them from
doing so. One main implication was the need for more reliance on fiscal policy and for larger
deficits than would have been the case absent the binding zero interest rate constraint.

It appears today that the world will likely avoid major deflation and thus avoid the deadly
interaction of larger and larger deflation, higher and higher real interest rates, and a larger
and larger output gap. But it is clear that the zero nominal interest rate bound has proven
costly. Higher average inflation, and thus higher nominal interest rates to start with, would
have made it possible to cut interest rates more, thereby probably reducing the drop in output
and the deterioration of fiscal positions.8

http://www.imf.org/external/pubs/ft/spn/2010/spn1003.pdf

See also - The Rentier Regime http://krugman.blogs.nytimes.com/2011/06/06/the-rentier-regime/- that discusses how the wealthy benefit from the current monetary policies and

Who Are The Rentiers? - http://krugman.blogs.nytimes.com/2011/06/07/who-are-the-rentiers/

[Derechos]

3. How deflation rewards creditors and those with cash at the

expence of debtors

Economic Problems of Deflation

A number of economists have warned for years that deflation was the economy's most serious problem. Deflation is negative price inflation, or a simultaneous fall in a broad range of prices for many goods and services.

A sustained deflation has serious economic effects:

For instance, it raises the real interest rate -- the market rate minus the change in prices. (Thus if prices fall 5 percent per year and the nominal interest rate is a modest 3 percent, the real interest rate is actually a high 8 percent.)

Sustained deflations also raise real wages -- leading to layoffs as employers try to economize on labor costs.

And deflation rewards creditors and those with cash at the expense of debtors and those with illiquid assets.

Most economists believe sustained deflation is far more damaging than an equivalent inflation -- indeed, a recent Milken Institute study argues economic growth is maximized at an inflation rate between 1.6 percent and 3 percent per year.

A sustained fall in sensitive commodity prices -- those that lead changes in the general price level, such as gold, the exchange value of the dollar and prices of long-term Treasury securities -- will eventually affect the whole economy.



Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, November 21, 2001.

For more on Economic Issues:

http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

[The Magistrate]

6. You Are Quite Right, Sir: Inflation Would Increase Investment

It would also go some ways to redress the present imbalance between creditors and debtors, even more so if proper regulation of interst rates were maintained, and usury re-criminalized.

[The Magistrate]

4. Nonesense, Ma'am

There is nothing to fear, for people hoarding cash.

The 'investors strike' we face at present is a purely political act, aimed at securing certain concessions from society and government that will institutionalize the aristocracy of wealth. When things like unions and old age pensions have been wrecked, these malefactors will commence again to 'invest'....

[TheKentuckian]

5. The purpose of an economy is to distribute resources, one cannot function with

a precious few sitting on everything. Yes, we want to force domestic investment, which forces hiring, which kills the glut, which places upward pressure on wages, which creates broader excess, which promotes circulation of more resources or at worst the purchase of more goods which means more demand.

I think the tax code is the tool but a little inflation is not a huge concern, all the basics that folks need to live are inflating anyway so who gives a damn if labor costs and capital type investments go up some?