And how it’s making the recession damage permanent.
Still, some countries have managed to avoid, or at least start to climb out of, this “lowflationary” trap. Australia, for example, defines “price stability”more liberally than other countries—2 to 3 percent averaged over the business cycle—and that’s helped it keep rates and inflation from falling too far to begin with. And then there’s Japan: after decades of deflation, it’s finally raised its inflation target, started printing money again, and promised to permanently double its monetary base.
All of these, though, are further than most central banks are willing to go. That’s because their unconventional policies are still circumscribed by conventional concerns. Or, to paraphrase Keynes, it’s better for their reputations to fail with the “right” unconventional policies than to succeed with the “wrong” ones.
The problem is we live in an upside-down economic time. Prudent policies are dangerous, because they could turn temporary losses into permanent ones. And dangerous policies are prudent, because they could keep this from happening—keep the economy’s growth trajectory from getting knocked down.
It’s a radical time. Policymakers need to be too.
H/t Kaveh Miremadi.
All of the classically trained economists (Democrat, Republican and Libertarian) can run around with their hair on fire proposing this fix or that fix, but the Capitalist economic model (system) will collapse anyway. Capitalism is dying. And good riddance. We all know what replaces Capitalism on the historical continuum. “Don’t worry…be happy” because it’s all good.