Liberal-progressives’ secular religious conviction that individuals don’t count, that only the socialist political state is capable of promoting the general welfare was repudiated by the failures and barbarism of Lenin, Stalin, and Hitler, inter alia. The Federal Reserve nonetheless persists in pursuit of Keynesian socialism.
Professor Allan H. Meltzer’s analysis from Monday’s Wall Street Journal op-ed pages seconds last Thursday’s post on this website.
The Fed Compounds Its Mistakes
Talk of increasing inflation to reduce unemployment is dangerous and unnecessary.
OCTOBER 11, 2010
By Allan H. Meltzer
The Federal Reserve seems determined to make mistakes. First it started rumors that it would resume Treasury bond purchases, with the amount as high as $1 trillion. It seems all but certain this will happen once the midterm election passes.
Then the press reported rumors about plans to raise the inflation target to 4% or higher, from 2%. This is a major change from the Fed’s quick rejection of a higher target when the International Monetary Fund suggested it a few months ago.
Anyone can make a mistake, but wise people don’t repeat the same one. Increasing inflation to reduce unemployment initiated the Great Inflation of the 1960s and 1970s. Milton Friedman pointed out in 1968 why any gain in employment would be temporary: It would last only so long as people underestimated the rate of inflation. Friedman’s analysis is now a standard teaching of economics. Surely Fed economists understand this.
Adding another trillion dollars to the bank reserves by buying bonds will not relax a constraint that is holding back spending. There is no shortage of liquidity in the economy
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