Over at Equitable Growth: A very effective smackdown, I must say:
4%/Year Inflation: "Generally speaking, I'm in DeLong's camp...:
...But here's my question: what makes him think that the Fed can engineer 4 percent inflation right now? And what would it take? I ask this because it's conventional wisdom that a central bank can engineer any level of inflation it wants if it's sufficiently committed and credible about it. And that's true. But my sense recently has been that, in practice, it's harder to increase inflation than it sounds. The Bank of Japan has been trying to hit the very modest goal of 2 percent inflation for a while now and has had no success. Lately it's all but given up. 'It's true that the timing for achieving 2 percent inflation has been delayed somewhat,' the BOJ chief admitted a few months ago, in a statement that bears an uncomfortable similarity to the emperor's declaration in 1945 that 'the war situation has developed not necessarily to Japan's advantage.'
So I'm curious. Given the current state of the economy, what open market operations would be required to hit a 4 percent inflation goal? How big would they have to be? How long would they have to last? What other extraordinary measures might be necessary? I've never seen a concrete technical analysis of just how much it would take to get to 4 percent. Does anybody have one? READ MOAR