End Game

Richard Posner (via Andrew):

A bit of inflation can be a good thing in a depression, because it operates as a tax on cash balances and thus reduces hoarding and stimulates spending. But I am worrying about the inflation that hits after the depression, when the government decides that it can no longer finance the public debt by borrowing, cannot raise taxes, cannot cut spending, and is left with having to debase the currency. I would like to see greater efforts by the Administration and by the economics profession to determine, so far as may be possible to do, the gravity of this danger.

The Administration? It's depending on higher inflation -- as long as it stays "controllable," of course, just like it was supposed to be in the 1970's. And the economics profession? Outside of a handful of media-darling economists who have inextricably linked themselves to either a political party or a market outcome, I'm not sure who has the visibility or the audience that such a debate would demand.

The best way to explore the danger that Posner worries about is for Congress to take public testimony from all current members of the Federal Open Market Committee, with particular attention paid to statements like this. Get them on the record. Since FOMC minutes don't conform to basic corporate or even small-town standards, with the names of participants omitted except for the voting indications, Congressional sunlight is crucial.

There are some encouraging efforts to impose more control and accountability on the Fed, which I believe has become almost a rogue operation (this episode, while relatively minor in the context of everything else, was both outrageous and unsurprising). Some members of Congress deserve credit for their work in this area. More on that soon.