After two decades of telling the public that 2% inflation is Nirvana, central bankers would baffle people were they to announce that they had changed their minds – and not in some minor way, but completely. Just recall the market’s “taper tantrums” in May 2013, when then-Fed Chairman Ben Bernanke suggested a far more modest turn in monetary policy. People might well ask why, if central bankers can change their long-term target from 2% to 4%, they could not later decide that it should be 5% or 6%?Because of course if the history of the last few decades teaches us anything, it's that the world is filled with central bankers dreaming of raising inflation targets. (And let's not forget that the "taper tantrum" was about the prospect that the Fed was going to return to type and run a more restrictive monetary policy.)
No, there's just no practical way to raise the inflation target. (I can't hear you, Wren-Lewis.) Clearly, what needs to be done is Rogoff's much more practical plan of
- Eliminating all paper cash money in favour of electronic money
- Empowering the central bank to charge negative interest rates on this electronic money, stimulating spending and overcoming deflation whenever the need arises. (Not a new idea: Irving Fisher offered a low-tech version 80 years ago.)
Yeah, that's the ticket. Because people will be so thrilled about a plan that says we need to make all your money electronic precisely because we may need to threaten to confiscate it piecemeal. Certainly much more likely to happen than raising the inflation target.
But maybe there's a hidden agenda. Margaret Atwood told us about it in the Handmaid's Tale:
All those women having jobs: hard to imagine, now, but thousands of them had jobs, millions. It was considered the normal thing. Now it's like remembering the paper money, when they still had that. My mother kept some of it, pasted into her scrapbook along with the early photos. It was obsolete by then, you couldn't buy anything with it.
Pieces of paper, thickish, greasy to the touch, green-colored, with pictures on each side, some old man in a wig and on the other side a pyramid with an eye above it. It said In God We Trust. My mother said people used to have signs beside their cash registers, for a joke: In God We Trust, All Others Pay Cash. That would be blasphemy now.
You had to take those pieces of paper with you when you went shopping, though by the time I was nine or ten most people used plastic cards. Not for the groceries though, that came later. It seems so primitive, totemistic even, like cowry shells. I must have used that kind of money myself, a little, before everything went on the Compubank.Come the revolution, and our heroine's Compunumber doesn't work any more:
I guess that's how they were able to do it, in the way they did, all at once, without anyone knowing beforehand. If there had still been portable money, it would have been more difficult.
...she said, Tried getting anything on your Compucard today?I'm onto you, Rogoff.
Yes, I said. I told her about that too.
They've frozen them, she said. Mine too. The collective's too. Any account with an F on it instead of an M. All they needed to do is push a few buttons. We're cut off.