Sean Corrigan sent me a link to a great article by Alen Mattich in the Wall Street Journal blogs section. He described it as “far too aggregative for this Austrian’s liking, but nonetheless an incisive demolition of the BoE in general and Posen in particular”.
It’s brilliant stuff:
Mervyn King, the Bank’s governor, has argued that even were he inclined to restrain the British debt binge, he couldn’t have done so without forcing up unemployment by a percentage point or more–something that would have been politically unpalatable. He didn’t want to hike rates because that would have meant writing letters about why he’d allowed inflation to undershoot the Bank’s 2% target. And yet he’s been more than happy to write letter after letter about why it’s been allowed to overshoot the target.
Posen’s arguments are informed by his academic specialization on Japan’s lost decades and the Great Depression. Like Princeton’s Paul Krugman, that’s the prism through which he interprets everything. Remember, Krugman and other arch Keynesians argued vociferously for the reinflaton of other bubbles in order to escape the “catastrophic” economic consequences of the tech and telecom bust in 2001.
And like Keynesians are wont to do, Krugman is happy to use inflation to engineer a massive transfer of resources from those who save to those who borrow. This, by the way, is an element of redistributionist social engineering. Posen isn’t likely to be very far away in his thinking.
For Posen, an American, this is a nice little exercise. An experiment on a smallish economy that might produce some interesting academic work. If it fails, if it ends up destroying the savings of the minority of Britons who actually pursued a course of prudence during an era when central bankers kept filling the punchbowl, well, too bad. Sometimes sacrifices need to be made in the pursuit of knowledge.
I recommend the entire article.