Gold Stand Gooood; Inflation Baaaad!

Ben BernankeThis morning, Brad Plumer writes about Paul Ryan’s bizarre ideas about how raising the Fed funds rate would get the economy moving. You see, by making bank credit more expensive, people would start investing more. You know how it is: if you go to the store and lettuce is one dollar, you might buy one head; but if it is $20, well, it’s time to stock up! This is what wunderkind Paul Ryan thinks about monetary policy.

If this sounds crazy, there’s a reason. While unserious people get their ideas about monetary policy from boring sources like economics textbooks, Serious People—and no one is as Serious as Paul Ryan—get theirs from Atlas Shrugged! And what do Ayn Rand’s 1.5-dimensional characters have to say about monetary policy? Gold stand gooood; inflation baaaad!

Okay, Ryan is a loon. But there is a serious issue here. The Federal Reserve has a dual mandate: keep inflation and unemployment low. But the Fed seems to have abandoned this idea. Here is a graph from Plumer’s article:

Inflation and Unemployment Timeline

Note the inflation and unemployment target lines. See anything strange? Since late 2008 (I wonder if something happened then?) the actual inflation rate has mostly been below target, and when it has been above target it has only been slightly above. (Note that many economists think that the inflation target of 2% is too low and that it should be raised to 3% or even 4%.) Contrast this to the unemployment rate that has always been above target—mostly way above target.

Matt Yglesias recently wrote about this (but I can’t find the article, this Bernanke to Economy: Drop Dead will give you the idea). He noted that if things were the other way around—inflation was high and unemployment was low—that Bernanke and Company would be very active. But when it is the way it is now, the Fed is lackadaisical. Why is this? Could it be that high inflation hurts rich people and high unemployment not only hurts poor people but also helps rich people? Could the Fed be this callous?

You know my answer.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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