Inflation, according to the official doctrine, was a horrible scourge which we suffered terribly from in the 60s and 70s... remember that? I don't. I remember a golden era where wages were largely indexed on prices, and mortgages paid for themselves.
In those days, the ambitious and greedy were intent on creating wealth, whereas these days they are focused on being wealthy... no creation required. It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
In those days, the ambitious and greedy were intent on creating wealth, whereas these days they are focused on being wealthy... no creation required.
In exchange for this, we were imposed, largely by the Germans, the Growth and Stability pact (the growth part being a joke and the stability only for the Germans, apparently), a monstrostity rightly refered to, by the economist and former President of the European Commission, as the Growth and Stupidity Pact.
I also note that France's inflation rate has been under the 2% level, if not on a year to year basis then on a consistent (and certainly rolling multi-year average) basis since Euro convergence criteria were established when Mitterand was President at the start of the 1990's and that, since then, France's economic growth has been sclerotic for most of the period. Contrast with economic growth in prior periods (1950-1980) when inflation was in the zone you are talking about (even in the 1970's on average France's inflation was under 10%) and an independent central bank was able to use inflation, along with fiscal policy, to manage the economic cycle.
Now, it is German exporters who manage France's business cycle, and not just France's, but also Italy's, Spain's, Greece's. And, they think they are the virtuous ones.
In fact, sclerotic growth in France (and, I would strongly suggest, in most of the Eurozone) goes hand in hand with over-eager German-inspired monetary policy bordering on psychosis. Unfortunately, as the article Mig discusses from Der Spiegel demonstrates, the Germans appear to be in a delusionary world fraught with inflation monsters behind every corner...unfortunately, this joke they are telling themselves is on us, not on them.
We'd all be better off if, instead of Greece reverting to the Drachma, Germany reverted to the Mark. Fai de bèn a Bertrand, te lou rendra en cagant
Noting, in passing, that the ECB has an explicit target of 2% inflation and no other explicit remit. No one is accepting this 3-7% target anywhere "serious" Brussels-consensus types congregate, and ECB monetary policy reflects that anti-growth (well, anti-growth with exception of German export growth) consensus.
ECB: Definition of price stability
Quantitative definition While the Treaty clearly establishes the primary objective of the ECB, it does not give a precise definition of what is meant by price stability. The ECB's Governing Council has announced a quantitative definition of price stability: "Price stability is defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%." The Governing Council has also clarified that, in the pursuit of price stability, it aims to maintain inflation rates below, but close to, 2% over the medium term.
Also look at the Educational section of the ECB's website: Inflation and the euro
Have you seen the inflation monster? Watch our cartoon on price stability
In fact, sclerotic growth in France (and, I would strongly suggest, in most of the Eurozone) goes hand in hand with over-eager German-inspired monetary policy bordering on psychosis.
It's not even protecting the intelligent wealthy, who know how to capitalize on opportunities economic growth tends to afford and know how to mitigate inflation-related risks.
This draconian monetary policy protects only old money, lazy old money. Fai de bèn a Bertrand, te lou rendra en cagant
a little bit of inflation (say 3-7% per year) is good for the poor and bad for the rich; more is the opposite.
Funny, 8 % per year is the ballpark figure I came up with for a manageable €-zone inflation baseline.
Of course, that's all long-term. Short-term, the solution is still a Greek sovereign default.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
I don't deny the German neuroses; I just don't think they're the thing we should focus on today: they are a convenient scapegoat for other problems. Wind power
We're pillorying them for their inflation target, and for their insistence on year-on-year budget balance.
Oh, and for the flippin' hypocrisy in demanding year-on-year budget balance from brown people who speak funny while running cycle-averaged deficits themselves...
Which is why inflation indexing of debt (as in Iceland and some parts of Latin America) is asinine. By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
