It is still wild to me that this is the approach we are taking, things are getting too expensive so let's shrink the economy. That can't be the best solution. We are throwing the baby out with the bathwater.
Not shrink. Slow the growth of. Decelerate is different from stop.
The real problem isn't any particular position, velocity, nor even acceleration. Those can all be planned for. It's the 4th time-derivative, jerk, that messes us up.
That is a semantic debate on whether we cross an axis on a graph and we won't know whether that will happen until after the fact.
We are intervening to make the economy smaller than if we didn't intervene. I think that qualifies as "shrinking" even if the growth is what is shrinking and not the overall economy.
> We are intervening to make the economy smaller than if we didn't intervene.
Depends on what time scale we're thinking about. True in the short-term, but I think the long-term expectation is that growth will be more stable, and therefore greater, with this short-term intervention.
> I think that qualifies as "shrinking"
Yes, and no. Yes, in that oh-so-important technical, relative sense. No, in that it's not the best choice of words.
Literally nothing can be planned for. Compare the Fed dot plots at any given meeting since 2008 with actual rates a year, or three years hence. Look at the BoE and BoJ flail wildly around right now, absolutely shocked by the consequences of their own actions less than a year ago.
These people have arguably a worse predictive ability than the canonical South Park Chicken ritual.
Central Banking is the only industry I know of in which you can be catastrophically wrong, always, and retain job security. Great gig, if you can swing it.
It's the only way we know of to stop greed/fomo running rampant. Folks need to be put in a time-out to cool off and force them to reprioritize. We like to think of the market as this calculated and rational entity. It's far from that, in fact it's closer to the opposite of that. The other option is to do price control, but that won't fly in capitalism.
There are other levers that can be pulled. Taxes are one example that could be much more targeted at the specific sources of the "greed/fomo running rampant". We instead chose to take it out on everyone.
I'd put taxation in the same bucket as price control because for this to be effective the taxes would need to be on the rich (in effect to drain liquidity) and that's as likely as price control.
I don't disagree with the unlikely nature of new taxes on the rich. That was basically my original point. It is wild that we decided that we would rather go into a recession than tax the rich and I don't understand why there is seemingly no public pushback against this.
There's historic precedence that increasing rates controls inflation. Yes, it's a very blunt and crude instrument. However, when you know this tool works, trying another tool is too risky to experiment with (in case it fails).
Inflation does have the risk of getting out of hand and being even harder to control. The risk analysis is that whatever pain increasing the rates would cause it pales in comparison to having hyperinflation.
As far as the lack of a pushback: My guess is a combination of apathy and the fact that it doesn't affect the average person quite as much as inflation.
I wouldn't say its the only way we know, rather its the only politically feasible move. Increasing taxes on the wealthy would arguably be a more effective way to take money out of the economy and wouldn't hurt non-wealthy people as bad, but good luck getting that through congress.
The only party that can act right now is the Fed, and the only move the Fed has in increasing interest rates.
The problem is that there's no proven good way to increase taxes on the wealthy. There's two flawed approaches: (1) increase income taxes, which doesn't tax the people who control the majority of the country's wealth, and (2) wealth taxes, which no country has ever figured out how to implement effectively.
> to do price control, but that won't fly in capitalism
Price control doesn't fly in any economic system. Putting a legal floor or ceiling on the price anything doesn't affect what it actually costs to produce it.
That depends on how authoritarian the regime is... However, I was talking about putting a price control over the level/amount of profit. If you look at the financial reports of late you'd see record profits during record inflation.
