YGLESIAS CALLS OUT ALAN GREENSPAN

on "class warfare" in (possible) interest rate hikes. Yglesias writes:

I think it's time to call "class warfare" here on Chairman Greenspan. The only rationale for the move is that he thinks it's important that inflation stay not very low, but very, very, very low. And the only reason to prefer very low inflation to very, very, very low inflation is a bias in favor of creditors against debtors. Since debtors outnumber creditors by a lot in today's USA, it's hard to construe this bias as operating in the interests of the nation, as opposed to Greenspan and his friends.

Granted inflation does favor the debtor over the creditor and the fact that Yglesias alludes to politics as merely one group imposing its interests on others is praiseworthy, he does not understand the complexity of the issue. "Greenspan and his friends" in the banking system also benefit from "inflation" -- the ability to create and act as the initial recipients of newly created money. Also, the real question here is on which "interests" should we focus? While debtors may benefit through inflation (they have to pay back less in real terms as the purchasing power of the currency falls), do the same debtors benefit through high consumer prices? Is there some optimal rate of inflation? If so, I'd like to see his defense of the rate.

All these matters aside, the funniest part of all this is how much time is spent taking Greenspan and monetary policy seriously! Let me tell you what monetary policy (in the general sense) consists of: a) the production of money or b) imposition of price controls on money. Neither of these paths confer a net benefit to society. Printing paper tickets does not help create real wealth (except maybe accidentally, but then there would be no need for a coordinated policy) and price controls merely favor one interest group at the expense of another. (See this paper for an in-depth treatment of the subject.)

The fact that analysts, pundits and now bloggers are dreaming up posts on optimal monetary policy is beyond funny.