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Paul Krugman covers that question here (gift link): https://www.nytimes.com/2023/06/09/opinion/inflation-target-2-percent.html?unlocked_article_code=1.ek0.979y.

Paul Krugman covers that question here (gift link): https://www.nytimes.com/2023/06/09/opinion/inflation-target-2-percent.html?unlocked_article_code=1.ek0.979y.zLAO6U1LWn88&smid=url-share https://www.nytimes.com/2023/06/09/opinion/inflation-target-... and argues that the theoretical assumptions that led to the 2 percent rate didn’t turn out to be true: > On one side were economists who believed that the essential role of monetary policy — maybe even its moral duty — was to deliver stable prices. Money, after all, is a yardstick we use to measure economic activity, and they argued that this yardstick shouldn’t be constantly changing its length. > On the other side were economists who worried that too low an inflation rate could inhibit our ability to fight recessions. The Federal Reserve and its counterparts in other countries try to manage the economy mainly through their control of short-term interest rates; but these rates can’t go much below zero, because negative rates would just lead people to accumulate stacks of $100 bills. A higher rate of inflation tends, other things being equal, to raise interest rates and makes it less likely that the Fed, faced with a recession, will hit the “zero lower bound” and be unable to cut rates further. The zero lower bound turned out to be a real problem, given the amount of years we spent at a zero percent interest rate.

dools 2y ago
The real problem is using monetary policy as a tool at all. We should have ZIRP forever and use fiscal policy to target price stability and full employment.
- immibis 2y ago
  ZIRP is zero interest rate policy - were you perhaps thinking of zero inflation rate instead? Zero interest rate tends to create lots of inflation because borrowing money (i.e. banks other than the Fed creating money) is nearly free.
  - cjbgkagh 2y ago
    I’m pretty sure they mean zero interest ZIRP with regard to MMT. But people forget the second part of MMT which is confiscatory in effect even if not by name, it’s still your money but you are no longer allowed to spend it until inflation comes down, by which point your money is obviously worth less than it was and that value is in effect confiscated.
    - neilwilson 2y ago
      God knows where you got that from
      - cjbgkagh 2y ago
        I remember reading it in a Harvard white paper, I deleted my MMT archives once it became obvious that it was not only economically unworkable (which I had already assumed) but also politically unworkable. Economists used to think that inflation was hard to start which made MMT more tenable and now they think inflation is hard to stop. It was only hard to start because speculative asset bubbles soak up liquidity and reduce money velocity.
        dools 2y ago
        MMT describes how money already works
        neilwilson 2y ago
        What makes you think appealing to authority at Harvard is impressive? Or using the term “economist” when you have Powell talking about being guided by the stars? MMT is a description of how reserve accounting works in an economy with a floating exchange rate and how that is linked to the physical economy. If you have something that shows how that isn’t the case in practice then I’m all ears.
        cjbgkagh 2y ago
        The Harvard white paper was supportive of MMT while I am not - so it wouldn’t have worked as an appeal to authority for my position. One of the reasons that MMT gained any traction at all is that many of their tenets are equally wrong to the tenets in neo-Keynesianism. So MMT people are correct when they say if X in neo-Keynesian is true then Y is also true. Which is why they can say they are simply describing what is already the case. But they’re both wrong because X is not true, you can’t presuppose neo-kensianism and expect to end up with a rational and coherent economic model. On that basis and more I really don’t respect practicing economists and wouldn’t use them as an appeal to authority either. Also my invocation of economists was highlighting their fickleness and incorrect beliefs. Since MMT is now politically impossible I no longer worry about it becoming a reality. It could have only been done at the same time as a raging speculative asset bubble and before the negative consequences of inflation has been felt by the middle and lower classes. But that’s too late now, Covid killed it. The lower classes blame the government for inflation and even if you don’t agree with them you’d still have to convince them otherwise and we have seen how futile that has been. It might still be possible to get MMT as part of a wartime economy but at that stage I’ll have bigger issues to worry about.
  - neilwilson 2y ago
    ZIRP removes the artificial intervention in the market for money by unelected individuals with no accountability to the population for their actions. The market for money then goes where it will according to free market principles and the autostabilisers operate in the market for labour instead. No point giving free money to people who already have money.
    - immibis 2y ago
      ZIRP is an artificial intervention in the market: Whenever it costs money to borrow money, the government will print some and give it for free to whoever is looking to borrow it.
      - neilwilson 2y ago
        Government always spends by printing money. Just as banks always spend by printing money. Taxation and loan repayments then shred money. There is no fixed quantity of little silver coins we pass around and never has been. There is no need to pay a third party for an accounting credit when you run the system
        immibis 2y ago
        ZIRP isn't just zero interest rate for the government; it's near-zero interest rate for everyone.
  - kristianp 2y ago
    It didn't create lots of inflation though. It took the disruptions caused by covid shut-downs to kick off inflation.
- quickthrowman 2y ago
  Using fiscal policy would require a functional legislative branch.
  - neilwilson 2y ago
    Not in the slightest. We have these things called “autostabilisers” that are temporally and spatially more precise than jiggling a single interest rate and indirectly hoping something moves in the right direction two years later
    - deleted 2y ago
      [deleted]
    - quickthrowman 2y ago
      I’ve got a dumb question, how would an autostabilizer policy become law? Can the executive branch unilaterally enact an autostabilizer policy? If not, that would “require a functional legislative branch” as I posted in the post that you replied to.
- throw0101d 2y ago
  > We should have ZIRP forever and use fiscal policy to target price stability and full employment. If only (US?) politicians would get their act together and act. Instead we have folks that believe cutting spending/demand will increase economic output ("expansionary austerity"): * https://en.wikipedia.org/wiki/Expansionary_fiscal_contraction https://en.wikipedia.org/wiki/Expansionary_fiscal_contractio... Or that tax cuts pay for themselves: * https://en.wikipedia.org/wiki/Kansas_experiment https://en.wikipedia.org/wiki/Kansas_experiment

dools 2y ago

The real problem is using monetary policy as a tool at all. We should have ZIRP forever and use fiscal policy to target price stability and full employment.

immibis 2y ago
ZIRP is zero interest rate policy - were you perhaps thinking of zero inflation rate instead? Zero interest rate tends to create lots of inflation because borrowing money (i.e. banks other than the Fed creating money) is nearly free.
- cjbgkagh 2y ago
  I’m pretty sure they mean zero interest ZIRP with regard to MMT. But people forget the second part of MMT which is confiscatory in effect even if not by name, it’s still your money but you are no longer allowed to spend it until inflation comes down, by which point your money is obviously worth less than it was and that value is in effect confiscated.
  - neilwilson 2y ago
    God knows where you got that from
    - cjbgkagh 2y ago
      I remember reading it in a Harvard white paper, I deleted my MMT archives once it became obvious that it was not only economically unworkable (which I had already assumed) but also politically unworkable. Economists used to think that inflation was hard to start which made MMT more tenable and now they think inflation is hard to stop. It was only hard to start because speculative asset bubbles soak up liquidity and reduce money velocity.
      - dools 2y ago
        MMT describes how money already works
      - neilwilson 2y ago
        What makes you think appealing to authority at Harvard is impressive? Or using the term “economist” when you have Powell talking about being guided by the stars? MMT is a description of how reserve accounting works in an economy with a floating exchange rate and how that is linked to the physical economy. If you have something that shows how that isn’t the case in practice then I’m all ears.
        cjbgkagh 2y ago
        The Harvard white paper was supportive of MMT while I am not - so it wouldn’t have worked as an appeal to authority for my position. One of the reasons that MMT gained any traction at all is that many of their tenets are equally wrong to the tenets in neo-Keynesianism. So MMT people are correct when they say if X in neo-Keynesian is true then Y is also true. Which is why they can say they are simply describing what is already the case. But they’re both wrong because X is not true, you can’t presuppose neo-kensianism and expect to end up with a rational and coherent economic model. On that basis and more I really don’t respect practicing economists and wouldn’t use them as an appeal to authority either. Also my invocation of economists was highlighting their fickleness and incorrect beliefs. Since MMT is now politically impossible I no longer worry about it becoming a reality. It could have only been done at the same time as a raging speculative asset bubble and before the negative consequences of inflation has been felt by the middle and lower classes. But that’s too late now, Covid killed it. The lower classes blame the government for inflation and even if you don’t agree with them you’d still have to convince them otherwise and we have seen how futile that has been. It might still be possible to get MMT as part of a wartime economy but at that stage I’ll have bigger issues to worry about.
- neilwilson 2y ago
  ZIRP removes the artificial intervention in the market for money by unelected individuals with no accountability to the population for their actions. The market for money then goes where it will according to free market principles and the autostabilisers operate in the market for labour instead. No point giving free money to people who already have money.
  - immibis 2y ago
    ZIRP is an artificial intervention in the market: Whenever it costs money to borrow money, the government will print some and give it for free to whoever is looking to borrow it.
    - neilwilson 2y ago
      Government always spends by printing money. Just as banks always spend by printing money. Taxation and loan repayments then shred money. There is no fixed quantity of little silver coins we pass around and never has been. There is no need to pay a third party for an accounting credit when you run the system
      - immibis 2y ago
        ZIRP isn't just zero interest rate for the government; it's near-zero interest rate for everyone.
- kristianp 2y ago
  It didn't create lots of inflation though. It took the disruptions caused by covid shut-downs to kick off inflation.
quickthrowman 2y ago
Using fiscal policy would require a functional legislative branch.
- neilwilson 2y ago
  Not in the slightest. We have these things called “autostabilisers” that are temporally and spatially more precise than jiggling a single interest rate and indirectly hoping something moves in the right direction two years later
  - deleted 2y ago
    [deleted]
  - quickthrowman 2y ago
    I’ve got a dumb question, how would an autostabilizer policy become law? Can the executive branch unilaterally enact an autostabilizer policy? If not, that would “require a functional legislative branch” as I posted in the post that you replied to.
throw0101d 2y ago
> We should have ZIRP forever and use fiscal policy to target price stability and full employment. If only (US?) politicians would get their act together and act. Instead we have folks that believe cutting spending/demand will increase economic output ("expansionary austerity"): * https://en.wikipedia.org/wiki/Expansionary_fiscal_contraction https://en.wikipedia.org/wiki/Expansionary_fiscal_contractio... Or that tax cuts pay for themselves: * https://en.wikipedia.org/wiki/Kansas_experiment https://en.wikipedia.org/wiki/Kansas_experiment