> There's no rational basis for the 2pct inflation target [1] […]
Except that it seems to work.
Hitting an inflation rate of exactly 0% is practically impossible: you're going to be either a little high, or a little low. So the option is: do you want "too high" or "too low" (negative)?
In the last little while how we've all seen how painful high(er) inflation is for people. Lessons from periods of the 1930s (and others in the linked-to PDF) show how bad deflation is.
A "little" high seems to have been a pretty good compromise.
This is not true though? Japan had interest rates around zero for decades and likewise inflation which bounced around the zero mark, sometimes over, sometimes under. It is both possible and feasible, it's simply a matter of policy. See [0] and [1], choose "max" as the date range to see what I mean.
> Under Kuroda, the BOJ deployed a huge asset-buying programme in 2013, originally aimed at firing up inflation to a 2% target within roughly two years.
> The central bank introduced negative rates and YCC in 2016 as tepid inflation forced it to tweak its stimulus programme to a more sustainable one.
Yes and Japan's economy has been stuck in the 90s for the past 30 years with very little growth.
What you're describing wasn't their goal, they have been keeping interest rates at ~0% since the late 90s to avoid deflation and to stimulate the economy (and therefore increase inflation) with limited success.
The 1930s show the consequences of inflation, speculation and credit expansion, and then bungled government response that dragged out economic contraction which is needed to clear out malinvestment.
Any common person realizes their ability to lead a dignified life is being squeezed out by monetary expansion gone amok, with those closest to the govt spigot getting the benefits and none of the costs (cantillon effect).
And it brings up a good point which no one answers satisfyingly: why shouldn't the average person just enjoy price savings produced by technology?
> The 1930s show the consequences of inflation, speculation and credit expansion […]
The 1930s were nothing special when it comes to wild swings in prices (as the article show), speculation was not new (see canal mania, railroad mania, etc)
What is special is the post-WW2 era (where there was no deflationary bust, especially after a major war), and the decades that followed (when there was no gold standard to handcuff monetary policy, and when Keynesian economics allowed for fiscal flexibility).
> And it brings up a good point which no one answers satisfyingly: why shouldn't the average person just enjoy price savings produced by technology?
There's a difference between deflation through innovation, and deflation through economic turmoil (e.g., mass unemployment, collapse of aggregate demand).
One of my favourite examples of 'invisible deflation' that no one notices (often while they're complaining about inflation) is a 1991 Radio Shack ad:
> that getting overly excited about things seems to just be a thing humans tend to do
human nature is to avoid discipline when they're comfortable and set the stage for a bubble & contraction, exactly what happens with artificially low interest rates and speculations like the manias you brought up
I'd still like to know according to who. Practically everyone agrees the economy is worsening for average people during many decades of nearly universal control by "mainstream" economists, advisors and bureaucrats.
> Practically everyone agrees the economy is worsening for average people during many decades of nearly universal control by "mainstream" economists, advisors and bureaucrats.
Look at the chart that this story is about: when things go negative, what do you think happened to people's employment opportunities? What do you think happened to their debts (deflation makes it worse)?
Do you want to perhaps look at the economic historical record of the ~80 years before 1945:
the dominance of equities is something precisely caused by the shift in the monetary system in the 1970s, which ushered in devaluation of money and forced ordinary people to seek yields from investments in businesses
Except that it seems to work.
Hitting an inflation rate of exactly 0% is practically impossible: you're going to be either a little high, or a little low. So the option is: do you want "too high" or "too low" (negative)?
In the last little while how we've all seen how painful high(er) inflation is for people. Lessons from periods of the 1930s (and others in the linked-to PDF) show how bad deflation is.
A "little" high seems to have been a pretty good compromise.