Volcker is Still an Inflation Superhawk


Ryan Avent reports that yesterday Paul Volcker responded to a question about his view of the appropriate inflation target by saying: “It doesn’t make me at all nervous that we have 0% price inflation at the moment.”

That seems like a mighty odd viewpoint to take up. A falling price level is a serious policy problem, especially if expectations of a falling price level become anchored. And if you have 0% price inflation, that means you’re running a substantial risk that you’ll get things a bit wrong and fall below zero. Avent comments:

Mr Volcker’s comments on financial regulation were generally sound, but there is a view among many that Barack Obama made a big mistake not granting Mr Volcker more authority, which I think is very much mistaken.

I also think this illustrates an interesting human tendency. The big important thing Volcker did in his career is tame inflation. And it was really important. So as a result, there’s a tendency to become sort of psychologically stuck on that moment of triumph, when a clear determination to whip inflation irrespective of the short-term cost brought success.