Grasping Reality on TypePad, by Brad DeLong

...and around the world are too low (especially since the US sets it in terms of the PCE: actual prices set by genuine businesses in the US, which should be the concern of the Fed, grow even more slowly).

The problem is that any central bank that ups its target would be exposed to all sorts of chaotic frenzies in the market, and political kvetching. That may be something that can be toughed out, but who would do it?

I really don't go along with Stan [Fischer]'s comment that 4% would open us to all sorts of evils like indexing, etc. Seems to me, based on my recollections of the 70s, that would probably be only a concern once something like 6% settled in, and even then the distortions caused by more extensive indexing would likely be limited (unless we did something like Franco [Modigliani] said was once proposed--possibly implemented--in Italy: indexing wages by computing the lira value of the percentage increase dividing that pot of lira evenly across all workers! An interesting scheme to redistribute income, though).