The Wrong War for Central Banking by Stephen S. Roach - Project Syndicate
the Fed stubbornly maintains that faster price growth - and the precious inflation rate of 2% - is just around the corner.
Missing from this logic is an appreciation of the new and powerful global forces that are bearing down on inflation. According to the International Monetary Fund’s latest outlook, the price deflator for all advanced economies should increase by just 1.5% annually, on average, from now to 2020 - not much higher than the crisis-depressed 1.1% pace of the last six years. Moreover, most wholesale prices around the world remain in outright deflation.
But, rather than recognize the likely drivers of these developments - namely, a seemingly chronic shortfall of global aggregate demand amid a supply glut and a deflationary profusion of technological innovations and new supply chains - the Fed continues to minimize the deflationary impact of global forces.
More: The Wrong War for Central Banking by Stephen S. Roach - Project Syndicate
This article makes the point that the world has fundamentally changed. With that change we desperately need to dethrone the penny pinching mindset of austerity which is foisting unnecessary misery on millions in Europe, the US and people seeking to immigrate to improve their lives. The last time that the US had a serious bout of inflation major portions of the US economy such as telecommunications, energy and the airline industry were monopolistic or restricted by regulations preventing price competition, the PC revolution was just getting started, the internet didn’t exist and the two largest nations in the world, China and India, produced virtually nothing for export. Today, as the article notes, the world produces more than can be bought, creating a powerful deflationary trend. But why can’t everything that can be produced by bought? Prosperity ought to be shared, so that the world’s production can benefit all the people in the world, and not just benefit the tiny fraction who belong to the investing class. To this end, I want to set out a bold program to end poverty in America and create a bright, prosperous future for the US and the world.
First, we need to have an ambitious program of infrastructure investment which will create lots of good paying jobs and build the America of the future. Our needs, which are being neglected, are myriad: Repair to our nations highways, bridges, urban utilities and public transportation, creating a smart energy grid and building a renewable energy production capacity in order to close all the coal fired plants, providing nation-wide high speed broadband and a first class educational system to ensure every child can achieve to their highest level of ability. Second, we need to enable all Americans, especially women, to have both the families and the careers they are capable of with universal affordable childcare and paid family/sick leave. Third, we need a true single payer healthcare system so that everyone can get the care they need and the federal government can control the costs effectively. Fourth, we should have a universal basic income so that no American has to live in poverty. Fifth we need to recognize that local zoning requiring single family dwellings is a civil rights issue denying housing to single and low income Americans in areas with a desperate shortage of affordable housing such as Silicon Valley and prohibit such zoning restrictions. Finally we should greatly liberalize immigration laws to make it possible for anyone who wants to come to America to work can do so after a background check, which will greatly improve their lives and grow the economy. How could we afford all this? First, we can expand deficit spending to ensure that the demand for US debt can be met. As the safest asset on earth, US treasury bonds are always in high demand even at ultra-low rates, and the return on the investments in infrastructure and education will more than pay for themselves. Second there is plenty of room for higher tax rates on the wealthy, which studies have shown will not choke off growth, and third we could monetize the remainder of the budget, simply printing the money we need. Won’t that produce inflation? Yes, and that’s good, since deflation is the serious problem today! And it will enable the Fed to normalize interest rates without costing people their jobs. While I know this program can’t be passed at this time, we need to state ambitious, optimistic programs so that the debate can be moved away from the dreary pessimistic discussion of what we have to take away from the people in order to be “fiscally responsible.” The US is not Greece; it can’t go broke and will not run out of money, but we can go into decline if we don’t invest in our future.