Central Banks Have No Practical Tools to Raise Inflation

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.


Greg Ip in the Wall Street Journal today:

Central banks have shown the will to hit their growth and inflation targets. But do they have the way?

That question is more pointed after the Bank of Japan on Wednesday announced two new central bank firsts. It now wants inflation not just to meet its 2% target, but to overshoot it. And it will now target not just short-term interest rates, but long-term government bond yields….Japan’s monetary travails matter to all central banks since so many countries are coming to resemble Japan, with slow growth and too-low inflation—factors that make it difficult for an economy to tolerate interest rates much above zero.

I suspect we’re learning something new: central banks can squash inflation by raising interest rates and causing a recession, but no central bank has ever tried to raise inflation. It’s simply been assumed that they have the power to affect inflation in both directions. But they don’t—at least, not in practice. I assume that if a central bank committed to flooding the economy with enough money it could, eventually, raise inflation rates, but no central bank is willing to go that far. And since it’s never been done, we don’t actually know for sure that it would work anyway. It might have side effects that trash the economy so badly that it wouldn’t be worth doing.

Pretty much every central bank in the developed world would like inflation to be higher, but not a single one has been successful at doing it. This suggests to me that in practical terms, inflation is a one-way ratchet. Central banks can reduce it, but they can’t raise it. I’m not entirely sure what this means, but economists need to come to grips with this apparent fact and figure it out.

TIME IS RUNNING OUT!

We have an ambitious $350,000 online fundraising goal this month and it's truly crunch time: About 15 percent of our yearly online giving usually comes in during the final week of the year, and in "No Cute Headlines or Manipulative BS," we explain why we simply can't afford to come up short right now.

The bottom line: Corporations and powerful people with deep pockets will never sustain the type of journalism Mother Jones exists to do. And advertising or profit-driven ownership groups will never make time-intensive, in-depth reporting viable.

That's why donations big and small make up 74 percent of our budget this year. There is no backup to keep us going, no alternate revenue source, no secret benefactor. If readers don’t donate, we won’t be here. It's that simple.

And if you can help us out with a donation right now, all online gifts will be matched thanks to an incredibly generous matching gift pledge.

payment methods

TIME IS RUNNING OUT!

We have an ambitious $350,000 online fundraising goal this month and it's truly crunch time: About 15 percent of our yearly online giving usually comes in during the final week of the year, and in "No Cute Headlines or Manipulative BS," we explain why we simply can't afford to come up short right now.

The bottom line: Corporations and powerful people with deep pockets will never sustain the type of journalism Mother Jones exists to do. And advertising or profit-driven ownership groups will never make time-intensive, in-depth reporting viable.

That's why donations big and small make up 74 percent of our budget this year. There is no backup to keep us going, no alternate revenue source, no secret benefactor. If readers don’t donate, we won’t be here. It's that simple.

And if you can help us out with a donation right now, all online gifts will be matched thanks to an incredibly generous matching gift pledge.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate