The respectful way in which intellectuals debate among themselves is quite admirable. But I have to say that with the condition of the global economy, and the fact that we are facing a second tsunami of deflationary pressures and what it means to average people, I am losing my patience in the expectation that some fruitful solution to the crisis is forthcoming.
I sense that there are many others who are starting to lose their patience, but because they are the thinkers, and polite debaters, it’s difficult for them to get their point across in a way that will be heard when necessity demands it. I learned how to do it when I went from Fortune 100 research to corporate IT, which is like moving from Alaska to Arizona in terms of political atmosphere. It was a whole other kind of social world I was thrust into where people don’t care about doing the right things, just being right. What they care about is being right even when they are wrong, getting away with busy work instead of being productive, keeping ones job doing the busy work and hiding from people who are willing to call their baby ugly by attacking them with irrelevant arguments. It was my job to find that kind of stuff and deal with it to cut waste and cost.
There are two steps to changing someone’s behavior – pointing out error, and then getting a solution to the error. We have tried meeting this problem with the Fed in a polite, frontal fashion, and there has been no change. We’re hearing the same absurd arguments about how everything is fine and art of obfuscation on their part is evolving. It does not matter who is right because they will be right even if they are not, and we are failing the first step.
So what do we have to do about it? The first thing is to destroy their arguments that everything is fine instead of offering the solution in a non-imposing sort of way. We have to force them to the trough of stopping the progress of error because everyone else is saying they are wrong. At this point, we don’t even need to have a preferred solution in mind, just so long as we can get it in everyone else’s mind that they are, indeed wrong. If everyone else is saying they are wrong, they are wrong. I suggested attacking them on the price stability mandate in my latest post in order to get others thinking about the emperor’s new clothes.
They say that focusing on price stability will achieve all of the other mandates, and they are doing that. But are they really focusing on price stability? No, they aren’t. They are focused on putting a ceiling on the upward movement of the CPI. They are focused only on stopping higher inflation from occurring, which is an entirely different thing than price stability and produces different results. We are in this predicament precisely because they were not focused on price stability – it’s in the data so it is easy to prove. Even if we don’t want to bring that up, we can explain what the present circumstance does to the economy in simple terms, like the once dreaded disinflationary gyration. We know disinflation hurts, and we want to know why it has been imbedded in the natural volatility of their targeting mechanism. We also want to know what makes this better than achieving actual price stability which would also have a floor. And we want to know what consequential activities are expected to occur in order to provide “low and stable inflation” as they insist they are doing without having the mechanics to do so and when many measures of inflation show volatility by as much as-25-50% over the last three years.
These are very simple things that can be understood by just about anyone if given the reminder about what they have heard about in the past, like in 2002 when the scare then was disinflation/deflation. We can do this. We can at least get the battle turned around so that these Fed guys are on the defensive, after having made it impossible to defend the indefensible. And once we establish that they have been doing things wrong, that it is costly, and largely responsible for the calamity we now have because we have been relentlessly focused on proving what they are doing is wrong (not complicating it by advocating a preferred solution in the mix), we can slip in the idea of NGDPLT as a solution and shift our focus to championing it.