{"id":1752664,"date":"2022-11-27T06:10:06","date_gmt":"2022-11-27T11:10:06","guid":{"rendered":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1752664"},"modified":"2022-11-27T09:48:34","modified_gmt":"2022-11-27T14:48:34","slug":"progressives-determined-to-accept-higher-inflation","status":"publish","type":"post","link":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/progressives-determined-to-accept-higher-inflation\/","title":{"rendered":"Progressives Determined to Accept Higher Inflation"},"content":{"rendered":"<aside class=\"mashsb-container mashsb-main mashsb-stretched\"><div class=\"mashsb-box\"><div class=\"mashsb-count mash-medium\" style=\"float:left\"><div class=\"counts mashsbcount\">12<\/div><span class=\"mashsb-sharetext\">SHARES<\/span><\/div><div class=\"mashsb-buttons\"><a class=\"mashicon-facebook mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fwww.conservativenewsdaily.net%2Fbreaking-news%2Fprogressives-determined-to-accept-higher-inflation%2F\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Facebook<\/span><\/a><a class=\"mashicon-twitter mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/twitter.com\/intent\/tweet?text=&amp;url=https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1752664&amp;via=ConservNewsDly\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Twitter<\/span><\/a><a class=\"mashicon-subscribe mash-medium mash-nomargin mashsb-noshadow\" href=\"#\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Subscribe<\/span><\/a><div class=\"onoffswitch2 mash-medium mashsb-noshadow\" style=\"display:none\"><\/div><\/div>\n            <\/div>\n                <div style=\"clear:both\"><\/div><\/aside>\n            <!-- Share buttons by mashshare.net - Version: 4.0.47--><p><em>Commentary<\/em><\/p>\n<blockquote>\n<p>\u201cHaving a little <a href=\"https:\/\/www.theepochtimes.com\/t-inflation\">inflation<\/a> is like being a little pregnant.\u201d<\/p>\n<p>\u2014\u00a0Leon Henderson, FDR Administration<\/p>\n<\/blockquote>\n<p>This past summer, Sen. Elizabeth Warren (D-Ma.)\u00a0<a href=\"https:\/\/www.warren.senate.gov\/newsroom\/press-releases\/senator-warren-in-wall-street-journal-op-ed-the-feds-aggressive-interest-rate-hikes-risk-triggering-a-recession-calls-on-congress-to-do-its-part-to-fight-inflation\">berated<\/a> Larry Summers and other interest rate hawks for possibly causing a <a href=\"https:\/\/www.theepochtimes.com\/t-recession\">recession<\/a> with their calls for higher rates. She called Summers \u201csomeone who has never worried about where his next paycheck will come from.\u201d While that\u2019s probably true, Warren outed herself as one of several progressives who are willing to accept higher inflation if it means low <a href=\"https:\/\/www.theepochtimes.com\/t-unemployment\">unemployment<\/a>.<\/p>\n<p>This seems to be a growing and preferred trend among progressives: they\u2019ll sacrifice the Federal Reserve\u2019s congressional mandate to maintain stable prices in order to prioritize the Fed\u2019s other mandate to maintain \u201cfull employment.\u201d For example, Jason Furman, who headed Barack Obama\u2019s Council of Economic Advisors, recently retweeted a <a href=\"https:\/\/rooseveltinstitute.org\/wp-content\/uploads\/2022\/11\/FINAL_A-New-Framework-for-Targeting-Inflation-2.pdf\">graduate student\u2019s thesis<\/a> calling for a Fed target rate of inflation between 2 percent and 3.5 percent after citing the supply shock as a major contributor to inflation.<\/p>\n<blockquote class=\"twitter-tweet\" data-width=\"550\" data-dnt=\"true\">\n<p lang=\"en\" dir=\"ltr\">A terrific, important report from <a href=\"https:\/\/twitter.com\/JustinBloesch?ref_src=twsrc%5Etfw\">@JustinBloesch<\/a> for <a href=\"https:\/\/twitter.com\/rooseveltinst?ref_src=twsrc%5Etfw\">@rooseveltinst<\/a>.<\/p>\n<p>I agree with the bottom line and think an inflation target range of something like 2-3.5% makes sense for the asymmetric Phillips curve articulated in the paper plus would add the decline in the neutral rate. <a href=\"https:\/\/t.co\/xNyO54ulSc\">https:\/\/t.co\/xNyO54ulSc<\/a><\/p>\n<p>\u2014 Jason Furman (@jasonfurman) <a href=\"https:\/\/twitter.com\/jasonfurman\/status\/1593385684504551424?ref_src=twsrc%5Etfw\">November 17, 2022<\/a><\/p>\n<\/blockquote>\n<p>Furman adds, helpfully, that the higher target rate would \u201cadd the decline in the neutral rate.\u201d It surely would because the higher target rate of inflation would allow less Fed tightening. And the Wall Street donor class would surely love that because the lower \u201cneutral rate\u201d\u2014the rate that neither stimulates nor constricts\u2014allows equities to continue their upward trajectory because money will remain readily available. (Among the owners of assets, inflation matters far less than to wage earners because the value of assets increases along with inflation. Wages and savings typically do not.)<\/p>\n<p>Funny how that kind of \u201ceconomics\u201d works, huh?<\/p>\n<h2>Why a \u2018Target Rate\u2019 of Inflation Anyway?<\/h2>\n<p>The Fed has used a 2 percent target rate for quite some time; at least since 1996. Ben Bernanke, then the Fed chair, made it explicit policy in 2012. It has been <a href=\"https:\/\/www.chicagobooth.edu\/review\/what-would-happen-if-fed-raised-its-inflation-target#:~:text=The%20Federal%20Reserve%20targets%20an,wants%20to%20stimulate%20the%20economy.\">questioned<\/a> previously.<\/p>\n<p>The target exists for two reasons:<\/p>\n<p>First, it is a buffer to prevent deflation and what is known as a \u201c<a href=\"https:\/\/www.investopedia.com\/terms\/l\/liquiditytrap.asp\">liquidity trap<\/a>,\u201d a theoretical construct by which interest rates in a recession are at\u2014or near\u2014near zero so that people hold on to cash. Monetary policy is useless because rates are what economists call the \u201czero bound.\u201d Rates can\u2019t be lowered further to stimulate the economy. Prices also tend to fall in a liquidity trap, and to continue to spiral downward, as deflationary expectations set in. (\u201cIf it\u2019s $10 this week, it will be $7 next week and $3 the week after, and so on and so forth.\u201d) Theoretically, the economy effectively seizes up as producers stop producing.<\/p>\n<p>The second reason is that the 2 percent target allows for the Fed to cut rates to stimulate the economy, where a nil interest rate would leave it ineffective.<\/p>\n<p>While the 2 percent target has those benefits, it has a downside. The value of savings is roughly halved over 36 years, so the value of money saved early in one\u2019s career is considerably less in retirement years.<\/p>\n<h2>It\u2019s Time to Marry Fiscal Policy to Monetary Policy<\/h2>\n<p>While supply chains were, indeed, interrupted during the pandemic and only came online in mid-2022, a good part of the inflation we experience now is attributable to the enormous increase in the money supply as a consequence of the pandemic and the lingering effect of the 2008 financial crisis. After the Trump administration, the Biden administration raised the money supply by an incredible 14 percent because of its spendthrift fiscal policy, as I explained <a href=\"https:\/\/www.theepochtimes.com\/a-republican-house-now-what_4866671.html\">here<\/a>.\u00a0While the money supply has tightened, somewhat, under the Fed\u2019s efforts at quantitative tightening (QT), that is a long, slow road. And as the Fed takes this long, slow road, the U.S. economy will be just maudlin, not unlike the period after the 2008 Lehman Brothers bankruptcy.<\/p>\n<p>To seize the initiative on inflation, the Fed\u2019s QT needs to be married with tighter fiscal policy, to ensure that the Fed can draw down its balance sheet more rapidly than it currently has planned. While QT will \u201csoak up\u201d more excess cash, fiscal tightening will reduce the amount of cash that needs to be in the economy to finance deficit spending. It will also reduce liquidity and leverage in the capital markets to \u201cspread the pain\u201d of a slowing economy\u2014an inevitable step to restrain the inflation of an over-heated economy\u2014among the holders of assets as well as wage earners.<\/p>\n<h2>A Road to Economic Perdition<\/h2>\n<p>Were the Fed to alter its target rate of inflation, to increase it by up to another 1.5 percent, it would be but a first step to creating the kind of inflation Germans saw in the Weimar Republic. A 3.5 percent target rate of inflation would halve the value of savings in just 20 years, not 36, as with the current 2 percent target rate.<\/p>\n<p>Moreover, if the Fed were to prioritize full employment over inflation, there would be nothing to prevent a revision of the target rate to, say, 6 percent or more if another burst of inflation struck the economy after adopting a 3.5 percent target rate. That would halve the value of savings in just 12 years. And there would be nothing to constrain raising the target rate even beyond that.<\/p>\n<p>Countercyclical monetary and fiscal policy, which is almost always used to avert a recession,<em>\u00a0inevitably<\/em> causes future economic fallout. Jim Grant, the publisher of <a href=\"https:\/\/www.grantspub.com\/\">Grant\u2019s Interest Rate Observer<\/a>, observed in his book, \u201c<a href=\"https:\/\/www.theepochtimes.com\/The%20Crash%20That%20Cured%20Itself\">The Forgotten Depression: 1921: The Crash That Cured Itself<\/a>,\u201d that then-President Warren Harding, Congress, and the Fed all basically adopted a laissez-faire\u00a0attitude toward the post-World War I Depression and that the economy, basically, recovered itself. Congress slashed spending and the Fed raised its discount rate to a record 7 percent. (See a summary of the policies <a href=\"https:\/\/fee.org\/articles\/the-depression-youve-never-heard-of-1920-1921\/?gclid=Cj0KCQiAg_KbBhDLARIsANx7wAwe4qeJ69PyHHIHML2FHGcdahXKW7pRw7fYNw6ZphQtCEwMWDpvALEaAlghEALw_wcB\">here<\/a>.)<\/p>\n<p>It is both sad and unfortunate that some workers and business owners will be adversely affected by this Fed-induced recession. But it is not unlike the diet one must undertake after over-indulging on Thanksgiving.<\/p>\n<p>For the Fed, the Congress, and diners this Thursday, the better choice might be to not over-indulge in the first place.<\/p>\n<p><i>Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.<\/i><\/p>\n<div class=\"author_wrapper\">\n<div class=\"one_author_block round\">\n<div class=\"top_row\">\n\t\t\t\t\t<a href=\"https:\/\/www.theepochtimes.com\/author-j-g-collins\"><img decoding=\"async\" src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/09\/ttl7dayhcW_WEB_JGCollins.jpg\" alt=\"J.G. Collins\" \/><\/a><\/p>\n<p>Follow<\/p>\n<\/div>\n<p>J.G. Collins is managing director of the Stuyvesant Square Consultancy, a strategic advisory, market survey, and consulting firm in New York. His writings on economics, trade, politics, and public policy have appeared in Forbes, the New York Post, Crain\u2019s New York Business, The Hill, The American Conservative, and other publications.<\/p>\n<\/p><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Commentary \u201cHaving a little inflation is like being a little pregnant.\u201d \u2014\u00a0Leon Henderson, FDR Administration This past summer, Sen. Elizabeth Warren (D-Ma.)\u00a0berated Larry Summers and other interest rate hawks<\/p>\n","protected":false},"author":1,"featured_media":1632853,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","fifu_image_alt":"","footnotes":""},"categories":[547],"tags":[],"class_list":["post-1752664","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-the-bongino-report"],"fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","_links":{"self":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1752664","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/comments?post=1752664"}],"version-history":[{"count":0,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1752664\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media\/1632853"}],"wp:attachment":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media?parent=1752664"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/categories?post=1752664"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/tags?post=1752664"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}