At one point I made a summarized and bulleted listing of what I view to be major perverse incentives regarding the concept of inflation targeting, pointing out main features that appear to bridge the divide between statists on the left and right.
This post from Scott Sumner regarding China’s transition to consumption provides yet one more item for the list: Prevents consumption from maintaining employment levels when investment declines.
In thinking about what this means, perhaps it is helpful to consider what average, middle class people are complaining about today: lower standard of living compared to perhaps the last couple of decades prior to this one. Because this complaint is really a story about consumption and not prices, at least for firm believers in the EMH like me it isn’t really a stretch of the imagination to explain the Donald Trump phenomenon as a broad objection to the current monetary regime that economically punishes consumption, even if that is temporarily all one has as form of growth as the rest of the world “comes on line.”
But of course the Star Chamber at the Fed doesn’t get just how much of a political backlash to its monetary management this truly is. There, it doesn’t seem as if the consensus is to question whether it’s the central bank’s duty to play a major role in molding the economic landscape between consumption and investment. And even if the notion that it has the moral authority to punish consumption were valid, which, in a democratic society I don’t believe so, tight money wouldn’t be conducive to incentivizing investment, with there being very few examples of success with that policy to point out, and at least one modern example of that policy’s tragic failure – Japan – where certainly more of it did not increase chance of success. If not for Abe, Japan would still be waiting for Godot.
Some people seem to feel a certain bit of anxiety regarding political developments of late. But, from my point of view, at least some clouds have silver linings; and for this, the lining just might be that the American people aren’t going to allow the waiting for decades for Godot even if they have to upend the entire political establishment, the existing order of things, to address it. Yes, Trump has some pretty miserable policy proposals. Most of the very few proposals he has posted on his website will cause more harm than good. But just the fact Trump is at or near the top of the game indicates progress in peeling back the layers of the political problems onion compared to the status quo. And it makes me feel somewhat better that at least they are doing SOMETHING.
Just think about what Trump means and not the literal meaning of what he says when he talks about immigration, for example, because he is not eloquent. He says he will build a wall, a wall with a big beautiful door, and that all the people who come here, will come here legally, with emphasis on the word “legally.” In that, the implication is he is saying a lot, not about immigration, but about the rule of law and order. Given that America’s political problems are difficult to summarize without providing enough information to fill a tome, what Trump says about immigration addresses the breakdown in the rule of law for political convenience. It doesn’t mean he will end immigration. In fact, it might even be increased – legally – in reference to the “big, beautiful door.” His position on immigration, with one exception, is not materially different than mine that I posted here.
More importantly, Trump’s position on the rule of law is not at all different from mine. Suppose that Scott Sumner and David Beckworth had a chance to have a conversation with Mr. Trump about the developments in monetary policy over the last several years. Suppose also that he understood exactly what their version implies toward the cohesiveness of the Fed with the rule of law. It’s interesting to wonder how long the Star Chamber at the Fed might last if and when Trump “gets” the size and magnitude of the giant crock of lawless statism that exists there and what it has meant for average people. In general, silver bullets don’t exist. But in this case, the Market Monetarist remedy is probably the closest thing there is to one – and Trump, as clueless on policy as he appears to be at the moment, is not a stupid man. Perhaps this is equivalent of a belief in unicorns, but with the right information, there may yet be some promise of having the monetary situation resolved in a satisfactory way.
PS: There’s some bad economics in the video of Trump linked below, no doubt. But listen to the last minute to 30 seconds.