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More Treachery at the Fed?

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Yes, it does. If the Fed achieves its target rate, then Bernanke will raise short-term rates regardless of the effects on growth or employment. That's what inflation targeting is all about; it's a hat-tip to investors that the Fed will preserve their wealth at all costs, even if the broader economy has to be sacrificed. Here's a clip from an article by economist Dean Baker who draws the same conclusion as Stiglitz:
"Inflation targeting has led to an enormous economic and human disaster, likely costing the world more than $10tn in lost output and leaving tens of millions of people unemployed. If this experience is not enough to discredit a policy, it is difficult to imagine any possible set of events in the world that could lead the inflation targeters to change their minds....

"....the central bankers and others directing policy place the interests of the financial sector at the center of their concerns." ("Guess which policy your central bank will pursue," Dean Baker, Guardian)
Get the picture? Inflation targeting is neoliberalism writ large, no different than "structural adjustment," "debt consolidation," "privatization of public assets," etc. It's another subsidy for speculators while ordinary working people get kicked to the curb.

Here's one last blurb from economist James Galbraith who's even more skeptical of inflation targeting than Stiglitz or Baker. This excerpt is from Galbraith's blistering critique of Bernanke's book titled "The Inflation Obsession: Flying in the Face of the Facts":
"....Inflation targeting in all cases coincided with high unemployment, and its main effect was to excuse central bankers from addressing this crisis.....("The Inflation Obsession: Flying in the Face of the Facts," James K. Galbraith, Foreign Affairs)
That's it in a nutshell. Bernanke wants to absolve himself of any responsibility to enact policies that will create "full employment." He'd rather shrug off the Fed's dual mandate ("price stability and full employment") and focus on inflation alone. That means that soaring unemployment and slow growth will be the norm for years to come.

There's a reason why Stiglitz, Baker and Galbraith all oppose inflation targeting. It's bad policy.
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Mike is a freelance writer living in Washington state.

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