STAFF NEWS & ANALYSIS
Four New Schools of Economic Thought: None Question the Fed
By Daily Bell Staff - May 24, 2016

Four Ways to Think About the Economy … I see four different schools of thought about how the economies of the U.S. and much of the developed world should be managed. The challenge for the Federal Reserve and other central bankers is that it’s hard to know who’s right. –Bloomberg

The author of this article proposes a series of unique, economic “schools.”

The first, he says, are “neutralists.” This group of economists believe that so long as inflation is “low and stable,” central banks need not exercise their power.

They believe that government officials should spend more time concentrating on building better economies and less time worrying about monetary policy.

The second group, he calls, “inflationistas.” These economists worry a lot about price inflation and are constantly upset by lack of definitive Fed action to combat it.

Inflationistas see price inflation everywhere and want to use central banks to take constant action to make sure it doesn’t get worse.

The third group is the “bubblers.” He compares this group of economists to the “neutralists.” The neutralists don’t want much central bank activity. The bubblers are actually “skeptical about the efficacy of monetary policy.”

The bubblers don’t even see central banks at the heart of monetary phenomena. “Many would even say that inflation is being driven largely by technological and demographic forces outside central banks’ control.”

The fourth group is called “the gappers.” Gapper economists believe that economic activity is modest and will have to climb much higher to create price inflation.

Gappers want central bank activism via increased monetary production. They are in favor of continued low interest, additional quantitative easing and other creative kinds of stimulus to support and expand economic activity.

These Gappers are so convinced that more can and should be done that they argue that if central banks are reluctant to be proactive, fiscal and government authorities should take over and do the job themselves.

This argument is a somewhat incendiary one that “provokes the inflationistas and also many neutralists, who believe that government is already too big.”

Having summarized these four schools of thought, the article asks, “who’s right?”

Somewhat predictably, the author decides that all four points of view have at least some validity.

The neutralists are correct that we should consider ways to improve the economy’s longer-term growth potential …

The Fed shouldn’t address the inflationistas’ concerns by choking off growth now. Instead, the central bank should be clear about its willingness to raise rates sharply once “core” inflation … has risen in a sustainable way above the 2 percent target.

If the bubblers are right about artificially inflated asset prices, that doesn’t necessarily mean that an ensuing bust has to severely harm the economy.

Gappers are demonstrably right that inflation and expected inflation are too low in the developed world. On this front, there’s plenty that monetary and fiscal authorities can do.

The article concludes that further stimulus is necessary and that “policy makers” need to support what is thus far “a profoundly disappointing economic expansion.”

Shaw Academy Ltd

Where to start with this article?  We would argue that these so-called schools of thoughts are all merely reactions to central bank policy. In other words, they did not spring up independently.

The author makes it sound as if there were different academic persuasions busily building their own economic disciplines. But, fundamentally, there are no gappers or inflationistas, etc. There are only mainstream economists who have varying opinions on central bank monetary policy.

The article is so wrongheaded and clumsy that we decided a very young person must have written it. We looked up the author and his bio.

Here, from Wikipedia:

Narayana Rao Kocherlakota is an American economist and is the Lionel W. McKenzie Professor of Economics at the University of Rochester. Previously, he served as the 12th president of the Federal Reserve Bank of Minneapolis until December 31, 2015.

Conclusion: This editorial, among others, shows how far from truth-telling mainstream economics is. Only when people finally start exposing the fundamental, illogical and ruinous nature of monopoly central banking, will economics will begin to change. Nothing is going to happen until then. Bloomberg is only making matters worse.

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