It’s funny how every politician and economist thinks the Fed should maintain some level of inflation, and suppress interest rates, and the Fed effectively does that, but keeps it all just below most people’s radar screen.
Why does this happen? Why isn’t it a goal of the Fed to boost interest rates, and deflate? After all, with a little deflation our savings would be a little more valuable every year without us having to launder our money through the financial system and get clipped every year for the privilege. And with higher interest rates it would be easier to support ourselves in retirement. Aren’t these worthy goals?
By having a little inflation, it forces all savers to pay fees and taxes, even when we are not earning any real return. That keeps millions of people well paid in our banks and mutual funds, and allows more govt spending.
The older I get, the more I find myself subscribing to the theory that our standard economic prescriptions are cynical schemes that use political power to take from one group of people and give to another, with a little economic logic to act as a fig leaf. We are fed doom and gloom about the dangers of deflation, decorated with Great Depression and Japan stories. “Don’t even think about it”. I’d like to think about it, and I am not immediately convinced that true price stability (without long term bias to inflation or deflation) wouldn’t be a lot better for our society in the aggregate, even if it’s much worse for the money management world and spending politicians.
