Saturday, August 28, 2010

The Morality of Central Bankers

From Sumner:
central bankers are a bunch of well-meaning (or at worst amoral) people who act like sadists because they have the wrong model in their heads.  They think that it is “natural” for inflation to fall during periods of high unemployment.  And we know that ‘natural’ means good.  After all, natural foods are good for you, aren’t they?  Why do they think low inflation is natural in a weak economy?  Because it almost always happens.  When it doesn’t happen, e.g. 1974, the event is viewed as bizarre.
Here’s the problem with their reasoning.  The reason inflation almost always falls during a weak economy is because [central bankers have never been sufficiently accomodating.]...
What the Fed considers normal, I consider sadistic.  Not just this Fed, but earlier Fed’s, and foreign central banks as well.  If I knew there was 10% unemployment, I couldn’t sleep at night knowing the markets were predicting only 1% inflation, whereas the target was 2%.  I’d keep asking myself; “Why not do more stimulus?  We’d improve both the unemployment and inflation situations at the same time.”

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