Oligarchs and Money

Paul Krugman, NYT
APRIL 6, 2014

Econonerds eagerly await each new edition of the International Monetary Fund’s World Economic Outlook. Never mind the forecasts, what we’re waiting for are the analytical chapters, which are always interesting and even provocative. This latest report is no exception. In particular, Chapter 3 — although billed as an analysis of trends in real (inflation-adjusted) interest rates — in effect makes a compelling case for raising inflation targets above 2 percent, the current norm in advanced countries.

This conclusion fits in with other I.M.F. research. Last month the fund’s blog — yes, it has one — discussed the problems created by “lowflation,” which is nearly as destructive as outright deflation. An earlier edition of the World Economic Outlook analyzed historical experience with high debt, and found that countries that were willing to let inflation erode their debt — including the United States — fared much better than those, like Britain after World War I, that clung to monetary and fiscal orthodoxy.

But the I.M.F. evidently doesn’t feel able to say outright what its analysis clearly implies. Instead, the report resorts to euphemisms that preserve deniability: the analysis “could have implications for the appropriate monetary policy framework.”

So what makes the obvious unsayable? In a direct sense, what we’re seeing is the power of conventional wisdom. But conventional wisdom doesn’t come from nowhere, and I’m increasingly convinced that our failure to deal with high unemployment has a lot to do with class interests.

(More here.)