Targeting Inflation

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In general, which is a better inflation target: 2% or 4%? Matt Yglesias ponders the question here. I’ve long thought that the higher target is better for a variety of reasons (spurs consumption, allows wages to react to recessions faster, provides greater monetary flexibility, etc.), but my crude understanding of the situation is that even if this is all true, policymakers are afraid that once inflation targets get above 2% or so, you run the risk of a runaway spiral. Inflation of 4% is OK, but when that turns into 5% and then 7% and then 10%, you’ve got a big problem. And that’s what happens if you’re anything but maximally hawkish.

But what I don’t know is whether history really supports that view. Aside from episodes of hyperinflation, which aren’t really germane to our situation, do inflation targets higher than 2% often lead to an inflationary spiral? In America, the obvious historical episode is the high inflation of the 70s, but that had a variety of causes, and it’s not clear that inflation targeting (implicit in this case, since the U.S. Fed doesn’t have an explicit target) had anything to do with it.

Anyway, comments welcome. It’s obvious that a higher inflation target right now would probably be a pretty useful thing, but how about as a general policy? Would markets go crazy, convinced that the Fed would keep raising the target whenever the economy needed a bump? Or would they shrug after a while and just revert to all of their usual non-inflation-related pathologies? My guess is the latter, but what do I know?

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

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Truth #3: Facebook owns this.

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Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

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