In my last post I presented the latest report to Congress from the US Treasury’s Office of International Monetary and Financial Policy that contained, at the very least, a poor choice of words in describing the current atmospheric conditions for inflation. The report on inflation came under the heading of “Labor Market Conditions Continued to Improve, Inflation Remained Moderate.” It also stated that “… labor market slack and low capacity utilization have helped to contain inflationary pressures.”
My engineering position requires copious documentation for each project I undertake. At first, I found having to write down every minute detail of a technology solution tedious and time consuming. But after having done it a few times for various solutions, even documenting solutions that I did not implement myself, I find that it is a tremendous help to ensure thoroughness. I now welcome the chore because it requires me to think about what I am writing and I have caught a few important details I have overlooked, giving me an opportunity to correct implementation mistakes before my customer complains.
With that said, I find it completely astounding that someone can write such an idea spanning two paragraphs and not put two and two together to “get” how absurd it is to say low employment and capacity utilization are a help to contain inflation, and not “get” that perhaps containing inflation is not quite the right idea if low employment and capacity utilization is what it takes to get there, and they should never be considered any kind of help. Would inflation rise if more people were employed? Given low capacity utilization, it probably would not rise dramatically. So this is not only an absurdly perverse idea, but the inverse implication that higher employment and capacity utilization would be unhelpful is somewhat wrong. It would only be correct if supply were a zero sum game – which it isn’t, unless of course we have an energy department that has forgotten its core mission of ensuring adequate supply. But digging deep into the annals of the Obama Administration’s economic policy incoherence is a topic for a different day.
It’s true that macroeconomics can be quite complex, but supply and demand impact on prices is the easier aspect to understand – and whoever wrote this nonsense still does not “get it” that the focus on inflation is the wrong idea even after having written it down. If he or she does “get it,” he or she appears to be silent on the matter. And these are the people who are in charge of monetary policy diplomacy, the people who share ideas with other countries and decide what commitments to make regarding monetary coordination from the point of view of the Obama Administration; and they appear to accept the idea that low employment and low capacity utilization help in inflation containment.
It’s disgusting that after all of these years of economic distress arising from nominal instability such nonsense is not only tolerated, but considered correct. It’s also quite sad that the technocrats who are supposed to understand this stuff either do not or care not about the individuals who make up the statistics, and do not question the accepted conventional wisdom that containing inflation is the Holy Grail of societal wellbeing. Certainly if that were the case, then the Great Depression must have been boom years.