I have often commented on how conservatives seem so opposed to slightly higher inflation that they’ll often end up tacitly or explicitly supporting much more statist policies instead. The example I always think of was 1933, when conservatives were apoplectic over FDR’s attempts to bring prices back up to 1929 levels, but were OK with outrageously destructive statist policies like the NIRA. We saw many such examples in the last year of the Bush administration, with its fiscal stimulus, auto bailouts, bank bailouts, etc, etc. And now we see the same dynamic playing out in Britain, where the Conservatives refuse to raise the BOE’s mandate to 3% inflation, or 5% NGDP growth, but seem quite willing to socialize the banking system:
Chancellor of the Exchequer George Osborne and Bank of England Governor Mervyn King are preparing two programs to increase the flow of credit amid a deteriorating outlook in the euro area.
The U.K. central bank will activate an unused plan to inject at least 5 billion pounds ($7.8 billion) a month into the financial system. Another plan will allow lenders to swap assets with the central bank in return for money to be lent to companies and households. The Treasury will indemnify the bank for any losses.
I’m actually pretty sympathetic to the Cameron government. They are trying to do the right thing; fiscal austerity and monetary stimulus. Perhaps it’s simply impossible for them to sell a 5% NGDP target, level targeting. Maybe their political base would revolt—I’m in no position to judge. But whatever the reason, it’s very discouraging to see conservatives over and over again finding themselves forced to support outrageous statist policies, because they were unable to implement the free market solution to full employment—enough money to keep NGDP growing at a steady rate.
Conservatives need to realize that 5% NGDP growth isn’t the end of the world. There are much worse things. Australia has averaged 7% NGDP growth for decades and they have a very small government, virtually no national debt, and the healthiest economy in the Western world. There are worse things than steady 5% NGDP growth. Seriously, conservatives need to end their obsession with hard money, before there’s no more free enterprise system left to save.
Five percent NGDP growth, level targeting.
HT: Evan Soltas, 123