"Less than Zero: The Case for a Falling Price Level in a Growing Economy"

Wednesday, August 4, 2010
"Not long ago, many economists were convinced that monetary policy should aim at achieving 'full employment'. Those who looked upon monetary expansion as a way to eradicate almost all unemployment failed to appreciate that persistent unemployment is a non-monetary or 'natural' economic condition, which no amount of monetary medicine can cure. Today most of us know better: both theory and experience have taught us that trying to hold unemployment below its 'natural rate' through monetary expansion is like trying to relieve a hangover by having another drink: in both cases, the prescribed cure eventually makes the patient worse off. Heeding this 'natural rate' perspective, several governments - including those of Great Britain, the US, Canada, Australia, and New Zealand - have taken or are considering steps to relieve their central banks of responsibility for creating jobs, allowing them to focus instead on something central banks can do: limiting movements in the general level of output prices. This new trend in monetary policy raises a question of fundamental importance to both economists and policy makers: how should we want the price level to behave?" Read more. "Less than Zero: The Case for a Falling Price Level in a Growing Economy" George Selgin Via the Ludwig von Mises Institute. Image by jscreationzs / FreeDigitalPhotos.net.