With Inflation Low and Unemployment High, Bernanke Prioritizes Fighting Inflation Over Fighting Unemployment

Apparently David Vitter managed to find some time in his busy schedule of hooker-visiting to actually do something clever and round up a bunch of questions from economists for Ben Bernanke to answer. The best one is, I think, from Brad Delong:

Why haven’t you adopted a 3% per year inflation target?

The public’s understanding of the Federal Reserve’s commitment to price stability helps to anchor inflation expectations and enhances the effectiveness of monetary policy, thereby contributing to stability in both prices and economic activity. Indeed, the longer-run inflation expectations of households and businesses have remained very stable over recent years. The Federal Reserve has not followed the suggestion of some that it pursue a monetary policy strategy aimed at pushing up longer-run inflation expectations. In theory, such an approach could reduce real interest rates and so stimulate spending and output. However, that theoretical argument ignores the risk that such a policy could cause the public to lose confidence in the central bank’s willingness to resist further upward shifts in inflation, and so undermine the effectiveness of monetary policy going forward. The anchoring of inflation expectations is a hard-won success that has been achieved over the course of three decades, and this stability cannot be taken for granted. Therefore, the Federal Reserve’s policy actions as well as its communications have been aimed at keeping inflation expectations firmly anchored.

This answer reminds us both of why people like Ben Bernanke — he’s an intelligence and honest public servant — and also of why I’ve bene complaining about Ben Bernanke.

When I complain that it’s inappropriate of Bernanke to be prioritizing inflation-fighting over unemployment-fighting, people always pop up in my inbox or the comments section to say there’s nothing more Bernanke can do. But as you can see from Bernanke’s answer, Bernanke doesn’t think there’s nothing more he can do. Bernanke thinks there’s something he could do that would probably reduce unemployment but might make it more difficult to control inflation in the future.

I think it’s a bizarre reading of the relative risks and relative benefits. But it’s one that’s in keeping with the class interests of the wealthy, and it’s hardly shocking to learn that’s what matters most to conservatives like Bernanke. I just wish we could get more attention front and center for what it is that’s happening here. Unemployment is high in large part because the policymakers with primary responsibility for achieving full employment don’t want to use the tools at their disposal to achieve that goal.