Morning in America

A lot of skeptical discussion about the merits of temporarily targeting a higher inflation rate seems to me to partake of a lack of appropriate historical perspective on what that would mean. If the Fed produced several years in a row of four percent inflation, wouldn’t that mean we’d all be carrying our money around in wheelbarrows? That’s not how I remember growing up in the eighties:

FRED Graph 1

Paul Volcker, as I recall, is widely regarded as an inflation hawk. Indeed, he’s the man who whipped inflation! And though opinion on the merits of Ronald Reagan remains sharply divided, I’ve never heard anyone argue that he presided over inflation running amok. And yet there wasn’t a single year in the 1980s when the inflation rate fell as low as two percent. Whether the switch from the Volcker/Reagan era 4% target to the later 2% target was a good idea is something people can debate. But the notion that a temporary return to a 4% inflation rate would lead to some kind of ruinous debasement of the currency is confused.