How, by raising interests rates and putting the brakes on growth?
If inflation is above 2%, yes.
If inflation is below 2%, interest rates will be lowered in order to increase growth.
Why not lower the inflation target and see how the economy responds? If stable, low-level deflation could be achieved, it could do a lot of good. If nothing else, it would stimulate government to explore different ways of ensuring social-economic security when problems arise from decreased investment; i.e. self-governance/self-limitation of economic activity when opportunities are available by reason of other ethics besides the ethic to make more money by utilizing more resources.
Why would it be better? The Fed will hold inflation at 2% regardless.
Inflation is bad for people who save money. Deflation would be good for them. Why should the economy always be slanted in favor of people who borrow, spend, and waste money instead of saving? Why not favor those who conserve fiscally for a change?
Quote: livinglava wrote:
When you have to raise interest rates to keep up with inflation, that creates a situation where banks have to lend out money to make interest on it, which stimulates inflation in and of itself.
Raising interest rates results in the banks lending out less
money, which cools the economy and reduces inflation.
Right, but if inflation would be stopped/reversed by other policies and by voluntary behavioral changes in markets, less money could be borrowed without banks having to raise interest rates.
Quote: livinglava wrote:
Basically, politicians that support inflationary growth/stimulus block the evolution of more natural forms of fiscal conservation that prevent, counteract, and even reverse inflation.
That's OK. The Fed will ensure that inflation does not deviate from 2% no matter what the politicians do.
Both politicians and everyone else should adopt more fiscally responsible behaviors to strive for a more conservative economy. It would not only be good for saved money, but also for resource conservation.
If the Fed gets to 0% interest and borrowing would still be decreasing, that would indicate tremendous economic health, would it not?
Note that we don't want to prevent, counteract, or (God forbid) reverse inflation. We want inflation to stay at 2%.
We should. Inflation is a sub-optimal economic paradigm that we have tolerated for decades because we're afraid of recessions. If we would find ways of preventing/solving the problems that come with recession, it would be healthier to end inflation and to eventually achieve a stable, low deflation rate.
That is an unavoidable side effect of having a strong economy. People will only strive to make do with a little if they are facing dire shortages.
That is an economic weakness. Progress in waste-reduction should occur as part of a healthy economy. We achieve a better and more sustainable future if we constantly innovate in ways that return more land to a natural/reforesting state, reduce resource use so that more resources are available farther into the future, and overall more breathing room is created for population growth by achieving comfortable standards of living that require less resources per capita. This is the job of economies, not just having growth so people can invest, make, and spend more money without regard for the effects their economic activities are causing on each other, the environment, and future generations.
So how should things be changed in order to increase market competition?
Make laws that allow lawsuits against anti-competitive market behaviors.
Businesses will of course try to buy their way out of such lawsuits, either by paying off plaintiffs, lobbying government to create loopholes, etc.
In fact, businesses even know how to create situations in which potential competitors will come to work for them instead of entering their market to put competitive pressure on them to lower prices.
So enabling lawsuits is really not enough. You actually also need to identify areas/opportunities for stimulating competition within specific market areas and find ways to effectuate market entry.
Currently, I believe there is a lawsuit going on against pharmaceutical companies that colluded to avoid price-competition in drug production/distribution and I think there is also a bill to require drug companies to price drugs within a range based on an index of a number of other countries.
Each situation and market is different. Generally, the solution is to watch markets critically to see where competition could emerge but doesn't. Business and investors of course don't want to be stifled in doing whatever they can to increase revenues/profits as high as possible, but a free market isn't really a free market unless price-competition is fully actuated.
Of course, there is a reasonable counter-argument against full actuation of price-competition, which is the potential for waste that comes when prices to consumers and/or businesses are low. From the perspective of controlling waste, it actually makes sense to allow prices to rise until quantity-demanded is cut down to acceptable levels.
Ideally, however, waste-reduction/conservation can occur within a free market paradigm if people/business take the liberty of only using what they need and avoiding waste voluntarily. That is extremely difficult for people who see opportunity to produce/acquire/sell more when prices are low, but that is the big challenge of liberty in a free and prosperous society/economy.