

Inflation targeting is 25 years old, but has it worked? - known
http://www.bbc.com/news/31559074

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bcg1
Economists and central banks debating inflation targeting is a somewhat
ridiculous distraction... much of the data they use is based on surveys,
adjustments, theoretical models, or comes from inherently biased entities such
as banks and governments.

There is no real reason to think that 2% vs. 3% vs. 4% vs. whatever rate is,
as a general rule, "correct". It is just an excuse to manipulate interest
rates and make policies to benefit parties that thrive on financial
engineering.

When asked about if the the US social security system could remain solvent,
Alan Greenspan pointed out that they can always create as much money as needed
to meet the nominal obligations of the system; however without the production
of real goods and services, the details of legal financing are irrelevant.

Economic growth only comes from real labor, resources, goods, and service -
not from finance.

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panglott
What does "it works" mean? Most of the criticisms quoted are that inflation
targeting is providing insufficient stimulus. But is this a problem of
inflation targeting per se or inflation targets that are too low (i.e., 2% or
lower). Compare the experience of Australia, which has IIRC an inflation
target of 3% and a really astonishing history of economic growth.

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Smushman
Inflation targeting, it appears, is a failing experiment. Unfortunately
monetary policy is far too slow to see it yet.

The concept of a positive inflation rate is a noble one, but unachievable.
This is because, imho, it is just a high level way to reach for what is
actually an unattainable goal, which is control over spending habits.

On the outset, a policy maker realizes a 'simple solution' is to increase
spending when a recession or pullback arises. If they can force everyone to
spend, then recessions obviously cannot happen. On its face, we all can see
immediately that this can't work; if you reach into peoples' pockets and force
their money on the table there will be knock off effects on other
discretionary spending habits; besides that it is politically distasteful as
well.

So some bright policy maker realized, well, if we can't force them to do it,
how about we apply more carrot and less stick instead. Then we can achieve the
impossible without the use of force. This creates a false environment where
people feel they have control, but really they are doing just what policy
makers asked. It can be done through inflation targeting.

Viewed through this lens, the rest of what happened should begin to come
clear. It reached the desired goal immediately, and the unattainable was
suddenly possible! That is until the knock off effects are piled so high and
so deep that the whole thing craters, only now it is much worse.

It is a bit like forest fires. At first blush it is obvious to anyone that the
fires cause the damage. Stop the fires, and stop the damage. So we tried this
for years with Smokey the Bear, fire lines, and other measures with success.
Eventually fires became less frequent, but highly destructive events. After
years passed someone realized that controlled burns were probably a smarter
idea. At some point it should become clear that it is probably not necessary
due to the considerable expense and effort to create controlled burns. Maybe
we should just let them unfold naturally, with minimal interference where
needed, and just move people and property away from the areas of danger.

Just like in the case of forest fires, inflationary targets won't be
recognized as the menace they are until we are all forced to suffer from it.
Then, and only then, politicians will feel forced to move.

"It is difficult to get a man to understand something, when his salary depends
upon his not understanding it!" \- Upton Sinclair

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icu
Inflation is wealth transfer from deposit holders to the state. It is, in
other words, a stealth tax.

I think people accept inflation because they don't understand Economics.

Moving to my commentary of this article, it is basically a puff piece that
seemingly educates but really doesn't.

Don't waste your time.

As bcg1 points out, the figures are bogus anyway and are constructed to
conform to whatever story they want to tell at the time.

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twobits
Why do people seem to think that central bankers are beyond self interest?
Even more so, given their great power.

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notpeter
Dunno why the original is 404'd Google cache still has it.

[http://webcache.googleusercontent.com/search?q=cache:G653i10...](http://webcache.googleusercontent.com/search?q=cache:G653i10OAl8J:www.bbc.com/news/31559074)

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boon
404?

