by As often happens, I felt moved to reply to the e-mail that Noah Smith blasts out. On my PhD supervisor Larry Summers to whom I owe a debt I can never repay: who the fuck cares about inflation ? Answer: everyone but for opposite reasons. Economists think that, in the long run, inflation does not effect real quantities except for menu costs and shoe leather costs. Economists estimate those costs to be almost exactly zero. Then economists say that people hate inflation and we must follow those people because we are their leaders. Normal people hate inflation because they think it means price increases with no effect on wages so lower real wages. This view (which makes no sense according to economic theory for which theory I have zero respect)
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as often happens, I felt moved to reply to the e-mail that Noah Smith blasts out.
On my PhD supervisor Larry Summers to whom I owe a debt I can never repay: who the fuck cares about inflation ? Answer: everyone but for opposite reasons. Economists think that, in the long run, inflation does not effect real quantities except for menu costs and shoe leather costs. Economists estimate those costs to be almost exactly zero. Then economists say that people hate inflation and we must follow those people because we are their leaders.
Normal people hate inflation because they think it means price increases with no effect on wages so lower real wages. This view (which makes no sense according to economic theory for which theory I have zero respect) is supported by short term change on change correlations – increasing price inflation is correlated with reduced real wages as in 2021-2 and 1979-1980.
Both groups absolutely totally disagree on everything except neither likes inflation. Occasionally economists like Larry Summers,Brad DeLong, Olivier Blanchard, and Paul Krugman slip and admit that, as far as they can tell the inflation target should be 4% (AKA latest annual headline CPI inflation- 0.1%).
But when push come to shove to the Federa Funds rate, they go along with almost everyone else and leave me alone advocating a 4% target.
So I had just finished complaining about all of the former 4%ers who had defected to 3% when the BLS joined the pile on reporting that over the last 12 months the CPI has increased 3% (I mean they could at least have had some pity and reported 2.9% or 3.1% but noooooo they too are 3%ers now).
I am not the center of the universe. I am not that important. The world is not conspiring to make me look like a fool. I must repeat these sentences until I believer at least one of them.