The stress level at work has been declining lately. I’ve gotten my first full evening to myself in a few weeks, and I am looking forward to a full weekend off in even longer. On my drive in this morning I began thinking about my last post where I criticized a news report on Reuters of German inflation jumping a ‘whopping’ .04 percent in July, mostly due to food and energy costs. This report suggested that the jump in inflation would signal rate hikes by the ECB.
I realize that what some idiot reporter has to say about German inflation means about as much as my grumblings about Bernanke and his cohorts. But I can’t think of a better simplified illustration of the moral hazard of inflation targeting than the suggestion that rate hikes are coming because of food and energy price swings. It is entirely obvious to me that the story was not well thought out because if the central bank pushes and pulls on demand levers via interest rates, how would that translate into lower prices for energy? Less overall demand means less production and employment. Less employment leads to less commuting and excess driving. But what about food? How in world do we reduce the demand for food? Do we do that with lower birth rates that come with decades of recession or something more sinister for more immediate effect? Perhaps I am missing the point, but I just do not see any way around the inevitable end of road for the reasoning behind headline inflation targeting.
One would think that my previous paragraph is so completely preposterous that to have a monetary regime geared toward such theft from wide swaths of population, and lowering prices by these and other means is far too grizzly to be contemplated. Yet, here it is in print, the suggestion that it is entirely appropriate to subject economies to headline inflation targeting supposedly for the good of all. Perhaps it is for the good of all if one subscribes to socialist ideas of population control and survival of the most worthy couched in the superficially plausible benefit of a lower cost of living for those who manage to survive the ensuing economic disaster(s).
Leave it to me to turn the idea and intention completely inside out and come up with an entirely different plausible meaning; a tradeoff that is conveniently neglected in conversations about the current state of monetary affairs but is just as relevant.
How so-called conservative and moral people could agree to the appropriateness of it is puzzling. Perhaps it is somewhat close to the reason I don’t wince at buying hamburger from the grocery store, but I could never produce a pound of hamburger if I had to follow all of the steps in the production process myself. If left to my own devices for survival, I would likely become a vegetarian. I also avoid thinking about how the hamburger makes it to the refrigerator section, but that doesn’t mean it does not happen if I ignore it and ensure that it isn’t happening in my backyard. It is well worth thinking about how tight money lowers prices, or slows the rate of price rise among supply side variables, at the very least, because it concerns humans and humanity rather than cows.