Subject: Re: Buffett - zero inflation target
“Persistent deflation can be very pernicious, and it can and does happen in the modern world.”

I’d push back on that—not because deflation CAN'T happen, but because in the modern system it doesn’t persist the way it once did.

That’s the key shift.

Pre-Depression, policymakers didn’t have the tools—or the framework—to respond effectively. Today they do. And they use them, consistently.

We’ve now seen repeated episodes where economies weaken sharply and the response is immediate and overwhelming: Monetary expansion, fiscal stimulus, direct transfers.

The pandemic was the clearest example. If there were ever conditions for sustained deflation, that was it.

Instead, the system reflated rapidly.

So the question isn’t “Can deflation exist? ”Of course it can.

The question is: Does it persist in a way that defines the modern risk environment?

The evidence of the last several decades suggests it doesn’t—because the policy response function has fundamentally changed. Fundamental is the operative word. This is not mere coincidence

That’s why I don’t think the 2% target should be treated as some kind of optimal truth.

It may be a practical convention. It may even be a useful buffer.

But it’s also rooted in a risk framework shaped by a different era—one where deflation was far harder to escape than it is today. The memories of the Great Depression will stock with us for life. But we no longer need to worry about not having money--that's an easy simple immediate fix, we need to worry about WHAT OUR MONEY CAN BUY.

In the current system, we’ve shown we can generate inflation when we need to.

Containing it once it’s unleashed has proven to be the harder part.

Disclaimer: 4 years of Jesuit education. So I have a solid excuse for being wrong :)