But let’s focus on the choice of a 2% target. After the high inflation of the late 1970s and early 1980s, when it reached over 20% in the UK, central banks were left scrambling to find some new theoretical model to deal with rising prices. The first central bank to propose an inflation target of 2% was in New Zealand. But where did they get it from? Apparently, from thin air.
Recently, I came across this one story that suggested the choice of 2% was the result of an off the cuff remark by then New Zealand finance minister, during a TV interview, who told reporters he would be happy with an inflation between 0% and 1%. This led the governor of the central bank at the time, Don Brash, to factor in an inflation bias of roughly 1% to arrive at the magical number of 2%. Michael Reddell, a colleague of Brash’s at the time at the Reserve Bank, admitted: “It wasn’t ruthlessly scientific.” Brash himself admitted as much: “It was almost a chance remark. The figure was plucked out of the air to influence the public’s expectations.”
Theft from… creditors?
The creditors do fine, unless inflation outpaces interest. It mostly hurts those on fixed incomes (non-investors).
That’s an argument to peg social security to inflation, not to get rid of inflation.
Is there a good reason not to adopt both positions?
Yes, absolutely. The number of reasons why inflation is good for the general economy is… rather vast.
Only because our economic system is underpinned by consumption and “always more”. A more sustainable form of capitalism needs to be imagined, imo
It’s not just a question of growth. It’s also a question of wealth inequality and the accumulation of liquid capital, of the velocity of money, avoiding liquidity traps, etc etc etc etc.
Which is all, unsurprisingly, based on unfettered and unlimited capitalism.
Do you have an example of a country that did well long-term by not targeting low single-digit inflation as the large, successful countries do?