Sunday, August 01, 2010

Low Inflation

I think it was the Dallas Fed that once sent me a glossy newsletter claiming that we've really had massive deflation over the years because measured against hours worked things are now so much cheaper. No that doesn't make any sense.

Anyway, if you have close to zero inflation in normal times then if things get bad there's much less the Fed can do because of the zero bound. If you're a sociopath who enjoys the prospect of massive long term unemployment and widespread human misery for people who aren't you this is a feature, but for the rest of us this is a very bad idea.