The Great Moderation Just Moderated the Risks of the Rich

Following up on my earlier post, about people swimming in a stream of economic change over which they have no control:

As I often do, I was re-reading some old Steve Randy Waldman posts, and came across one that made the same point quite elegantly: “Stabilizing prices is immoral“. (If you want to understand how economies work, just read everything he’s ever written. Twice.)

One line stood out for me. Wonkish, but remarkably pithy and apt (and accurate):

Symmetrical price targeting turns debtors, taxpayers, and marginal workers into high-beta speculators on the state of the broad economy

He explains (emphasis mine):

Just when these groups need a break, when the economy is bad due to an adverse supply shock, they are hit with additional costs in the name of price stability. Sure, when things are good all over, they get some frosting on their cake. Their highs are higher, but their lows are lower. Symmetrical price targeting turns debtors, taxpayers, and marginal workers into high-beta speculators on the state of the broad economy, while reducing the risk exposure of creditors and secure workers. It represents a vast subsidy, a transfer paid in risk-bearing, from debtors, taxpayers, and marginal workers to creditors and secure workers. A symmetric price target is a better deal than asymmetric price restraint for debtors, taxpayers, and marginal workers — better to have some benefit than no benefit for the burden of guaranteeing other peoples’ purchasing power! But a symmetric price target is still a raw deal.

IOW, “the great moderation” as engineered by the Fed was a thirty-year campaign (still continuing) to protect, preserve, and expand the wealth of creditors and stable job-holders at the expense of those other groups.

Remember: an extra point of inflation transfers hundreds of billions of dollars per year in real buying power from creditors to debtors, from financial-asset holders to real-asset holders (with “real assets” very much including the ability to work).*

And the Fed is run by creditors.

Which reminds me of a post I wrote some time ago:

Demand Inflation Now!

* Nick Rowe has responded to this statement in the past by saying this is only true of “unexpected” inflation. I would reply by asserting that all changes in the inflation rate are unexpected. Maybe I’ll finish up my post demonstrating that one day.

Cross-posted at Asymptosis.

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