> the “traditionalist view” of monetary policy: the belief that the only way to tame inflation is by causing a recession. This view so thoroughly dominates the economics profession that it is often considered something closer to a law of nature
This belief dominates the journalist profession, not the economics profession
> Higher interest rates make it more expensive for consumers to buy a home or car and for businesses to make investments, which, in turn, is supposed to reduce hiring, blunt wage growth, and depress spending. The entire point is to cool prices by grinding the economy to a halt
That's a very consumer point of view and not relevant to the economy at large. Raising interest rates result in a smaller money supply than not raising interest rates. That in turn reduces inflation. This is Econ 101
> Volcker went down in history as the hero who saved the economy. The economics establishment drew a clear lesson: The cure for inflation is a recession
No, silly journalists drew that conclusion. Economists knew exactly why raising rates reduced inflation. This author is very confused
Exactly, "causing a recession" is not the way to lower inflation, but merely a side-effect. Most of the resulting recession is not even real in a way, because the preceding economic expansion based on dirty-cheap money was not real either. It's mostly just a return from imaginary lala-land to ground truth. Sure, there's also a lot of wealth destruction going on, but that destruction was really happening during the boom and the following bust only makes it apparent.
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[ 4.7 ms ] story [ 28.2 ms ] threadThis belief dominates the journalist profession, not the economics profession
> Higher interest rates make it more expensive for consumers to buy a home or car and for businesses to make investments, which, in turn, is supposed to reduce hiring, blunt wage growth, and depress spending. The entire point is to cool prices by grinding the economy to a halt
That's a very consumer point of view and not relevant to the economy at large. Raising interest rates result in a smaller money supply than not raising interest rates. That in turn reduces inflation. This is Econ 101
> Volcker went down in history as the hero who saved the economy. The economics establishment drew a clear lesson: The cure for inflation is a recession
No, silly journalists drew that conclusion. Economists knew exactly why raising rates reduced inflation. This author is very confused