Folks, it’s a tyranny of the PhDs. Recently, the central bank of Sweden was subject to a withering tirade by that oracle of Keynesian rubbish, professor Paul Krugman, who accused it of ‘sado-monetarism’ for leaving the Swedish economy exposed to the mythical economic disease of ‘deflation’.
So the Riksbank threw caution to the wind, and a few months ago joined the global central bank plunge into ZIRP and promised to ladle out free money until at least 2016. To leave no doubt, it is currently cranking up for direct lending, ‘asset purchases’, negative interest rates (N-ZIRP) and the rest of the recently invented central bankers voodoo kit. Anything to achieve its sacred 2% inflation target!
So still another central bank has been infected by the 2% inflation shibboleth – -a folly the greatest central banker of our era dispatched recently with a single sentence:
Mr. Volcker, who believes the Fed’s main goal is to defend the dollar’s stability, said he doesn’t even understand why the Fed adopted a 2% target for inflation. He asked, ‘Do we want prices to double every generation?’
Yes, today’s Keynesian central bankers don’t particularly care what happens in the next 30 years or even 30 months. It’s all about the noise-ridden ‘in-coming’ data and whether the gap between actual production and employment, one the one hand, and a theoretical figment called full employment or ‘potential’ GDP, on the other, has been closed.
It is downright amazing that the $75 trillion global economy is in thrall to the stupid math models of a couple of hundred PhDs. And these so-called DSGE models (dynamic stochastic general equilibrium) are, indeed, just plain stupid.
This post was published at David Stockmans Contra Corner on December 19, 2014.