Subject: Re: Buffett - zero inflation target
And before someone brings up Japan—

Well, colour me unconvinced. It sounds like you've said that persistent deflation isn't a problem because it never happens any more, and the one big recent instance that disproves that generalization can be ignored because...it disproves the generalization? (just kidding)

Persistent deflation can be very pernicious, and it can and does happen in the modern world.

Yes, in theory (though clearly not in practice) helicopter money can always solve deflation. I believe the reason it doesn't is that by the time you have persistent deflation because of some set of root causes, those root causes can be very difficult to fix, and the difficulty can rise over time.


My point was merely that there is a very good reason that inflation targets tend to be around 2%. Central banks are always learning more about what not to do, but the evidence to date is that a lot of countries have tried other numbers as targets, including zero and "no target", and the largest number of successes, for extremely good reasons, have been in countries targeting around that number. They can get into Jesuit-like distinctions between "around" and "around but not above", but it's still that area that thinks seem, so far, to work out best.

Jim