27 October 2010
Unrealistic Expectations
As shown in his letter in the October 26, 2010 Wall Street Journal, Rolf Goehler, like most anti-establishment types, does not understand that the national economy is built on unrealistic expectations. The Fed has dual and contradictory roles: control inflation and support economic growth. A steadily, but slowly, deteriorating means of exchange is necessary to provide an incentive for consumption and capital investment; however, when the monetary authorities overlook a dangerous detachment of inflation from the rate of business and employment growth they risk a burst in the bubble.
This is apparently what led to the Great 2007/8 Recession. Managing the economy in a politically acceptable way that promotes comfortable welfare means keeping a balance between supply and demand that allows the public to sustain its self-deception that things will usually get better. The policies that Goehler decries are perfectly rational as long as the policy makers don’t lose sight of the need never to let go.
As shown in his letter in the October 26, 2010 Wall Street Journal, Rolf Goehler, like most anti-establishment types, does not understand that the national economy is built on unrealistic expectations. The Fed has dual and contradictory roles: control inflation and support economic growth. A steadily, but slowly, deteriorating means of exchange is necessary to provide an incentive for consumption and capital investment; however, when the monetary authorities overlook a dangerous detachment of inflation from the rate of business and employment growth they risk a burst in the bubble.
This is apparently what led to the Great 2007/8 Recession. Managing the economy in a politically acceptable way that promotes comfortable welfare means keeping a balance between supply and demand that allows the public to sustain its self-deception that things will usually get better. The policies that Goehler decries are perfectly rational as long as the policy makers don’t lose sight of the need never to let go.
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