I don't see how an inflation target works either through balance sheet or income effects. So much of debt is financed by variable rates, which will simply readjust if inflation picks up and counter the stimulative effects.
The way in which an inflation target works is by depreciation of the dollar in a currency war and an increase in net exports, abetted by real wage reductions through price inflation. This is a politics of reactionary mercantilism masquerading under the benign name of an inflation target; it is also unfortunately a classic politics of Keynesianism. It points not to a better but a more gloomy future, as the Frankfurt School economics Mandelbaum and Pollock immediately recognized. Keynesianism will end in tragedy; neo-classical economics is a farce. We need another way out of the crisis.
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