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“The Federal Reserve’s relentless pursuit of 2% inflation creates more problems than it solves. The 2% target has become gospel for central bankers. But as former Fed Chairman Paul Volckerpoints out in his new memoir, no economic theory or evidence supports the claim that a little inflation greases the economic wheels or reduces the risks of depressions. In fact, monetary policies that aim for 2% inflation risk contributing to financial bubbles that can trigger real economic collapse when they burst.
The 1978 Full Employment Act gave the central bank a dual mandate, to promote full employment and price stability. The law also established specific targets for reducing unemployment and inflation, which at the time were getting out of hand. Congress mandated that within a decade the Fed should bring unemployment down to 3% and the inflation rate to zero.
The legislation provided some wiggle room. The theory that reducing inflation increases unemployment was still respectable in those days. That’s why Congress gave the Fed permission to take a softer line on inflation if doing so would help bring unemployment down to 3%. That never happened, but 30 years later the Fed still exploits a loophole designed for a 10-year transition to zero inflation.
If Congress had wanted to give the Fed perpetual discretion on inflation, it could have directed the Fed to secure the greatest possible price stability consistent with 3% unemployment. Instead, Congress gave the Fed a precise number (zero), a source from which the data should come (the Bureau of Labor Statistics) and a target date (1988). Moreover, the 1978 bill gave the president—not the Fed—explicit, perpetual authority to propose alternative targets for inflation and unemployment to Congress.”
JJ Editor's Daily Picks
"The biggest topic in British political circles on Monday wasn’t the country’s impending departure from the European Union. It was milkshakes..."
"I often disagree with Rep. Justin Amash, R-Mich., but I've been disturbed by the idea that he should be run out of the Republican Party just because he believes President Trump committed impeachable offenses."
"The Icelandic band Hatari, whose members are quite vocal in their animosity towards Israel, held up Palestinian flags... Madonna, likewise, had two of her performers wear Israeli and Palestinian flags on their costumes."
"To celebrate the 10-year anniversary of Quentin Tarantino's "Inglourious Basterds" premiering at the Cannes Film Festival, I turn to movie critic Roger Ebert's old review of "Raiders of the Lost Ark." (Trust me on this one.)"
"The money is already here—and has been for years. In the midst of a housing crisis, an injection of cash into the superheated real-estate market seems likely to cause an uptick in evictions and displacement."
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"With his new book, Howard Stern proves that his rightful place is among the prophets and moral visionaries, not the ‘shock jocks’"
"I’m terrified of parenting in the anti-vaxxer age: Anti-vaccine propaganda isn’t just harmful to children. It threatens to erode our entire sense of community."
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