But let’s focus on the choice of a 2% target. After the high inflation of the late 1970s and early 1980s, when it reached over 20% in the UK, central banks were left scrambling to find some new theoretical model to deal with rising prices. The first central bank to propose an inflation target of 2% was in New Zealand. But where did they get it from? Apparently, from thin air.

Recently, I came across this one story that suggested the choice of 2% was the result of an off the cuff remark by then New Zealand finance minister, during a TV interview, who told reporters he would be happy with an inflation between 0% and 1%. This led the governor of the central bank at the time, Don Brash, to factor in an inflation bias of roughly 1% to arrive at the magical number of 2%. Michael Reddell, a colleague of Brash’s at the time at the Reserve Bank, admitted: “It wasn’t ruthlessly scientific.” Brash himself admitted as much: “It was almost a chance remark. The figure was plucked out of the air to influence the public’s expectations.”

  • @Gradually_Adjusting
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    511 months ago

    Only because our economic system is underpinned by consumption and “always more”. A more sustainable form of capitalism needs to be imagined, imo

    • PugJesus
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      311 months ago

      It’s not just a question of growth. It’s also a question of wealth inequality and the accumulation of liquid capital, of the velocity of money, avoiding liquidity traps, etc etc etc etc.

        • BombOmOm
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          011 months ago

          Do you have an example of a country that did well long-term by not targeting low single-digit inflation as the large, successful countries do?

          • @[email protected]OP
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            011 months ago

            No.

            Do you have an example of any nation on earth, right now, that operates their economy without unfettered capitalism playing an integral role?