Central Banks Have No Practical Tools to Raise Inflation

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Greg Ip in the Wall Street Journal today:

Central banks have shown the will to hit their growth and inflation targets. But do they have the way?

That question is more pointed after the Bank of Japan on Wednesday announced two new central bank firsts. It now wants inflation not just to meet its 2% target, but to overshoot it. And it will now target not just short-term interest rates, but long-term government bond yields….Japan’s monetary travails matter to all central banks since so many countries are coming to resemble Japan, with slow growth and too-low inflation—factors that make it difficult for an economy to tolerate interest rates much above zero.

I suspect we’re learning something new: central banks can squash inflation by raising interest rates and causing a recession, but no central bank has ever tried to raise inflation. It’s simply been assumed that they have the power to affect inflation in both directions. But they don’t—at least, not in practice. I assume that if a central bank committed to flooding the economy with enough money it could, eventually, raise inflation rates, but no central bank is willing to go that far. And since it’s never been done, we don’t actually know for sure that it would work anyway. It might have side effects that trash the economy so badly that it wouldn’t be worth doing.

Pretty much every central bank in the developed world would like inflation to be higher, but not a single one has been successful at doing it. This suggests to me that in practical terms, inflation is a one-way ratchet. Central banks can reduce it, but they can’t raise it. I’m not entirely sure what this means, but economists need to come to grips with this apparent fact and figure it out.

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WHO DOESN’T LOVE A POSITIVE STORY—OR TWO?

“Great journalism really does make a difference in this world: it can even save kids.”

That’s what a civil rights lawyer wrote to Julia Lurie, the day after her major investigation into a psychiatric hospital chain that uses foster children as “cash cows” published, letting her know he was using her findings that same day in a hearing to keep a child out of one of the facilities we investigated.

That’s awesome. As is the fact that Julia, who spent a full year reporting this challenging story, promptly heard from a Senate committee that will use her work in their own investigation of Universal Health Services. There’s no doubt her revelations will continue to have a big impact in the months and years to come.

Like another story about Mother Jones’ real-world impact.

This one, a multiyear investigation, published in 2021, exposed conditions in sugar work camps in the Dominican Republic owned by Central Romana—the conglomerate behind brands like C&H and Domino, whose product ends up in our Hershey bars and other sweets. A year ago, the Biden administration banned sugar imports from Central Romana. And just recently, we learned of a previously undisclosed investigation from the Department of Homeland Security, looking into working conditions at Central Romana. How big of a deal is this?

“This could be the first time a corporation would be held criminally liable for forced labor in their own supply chains,” according to a retired special agent we talked to.

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And it is only because Mother Jones is funded primarily by donations from readers that we can mount ambitious, yearlong—or more—investigations like these two stories that are making waves.

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