They have one job to do
While central bankers are recasting themselves as environmental warriors and heroes for the downtrodden, they're taking their eyes off the ball.
Their jobs are to control inflation and they're so scarred from a generation of undershooting that they don't see all the pent-up demand and government spending that's in the pipeline.
Two person watching inflation are Charles Goodhart, an academic, and Manoj Pradhan, formerly at Morgan Stanley. They are out with a book called The Great Demographic Reversal that argues that the retreat from globalisation will reverse recent trends, leading to higher inflation.
They write:
Deflationary headwinds over the last three decades have been primarily due to an enormous surge in the world's available labour supply, owing to very favourable demographic trends and the entry of China and Eastern Europe into the world's trading system. This book demonstrates how these demographic trends are on the point of reversing sharply, coinciding with a retreat from globalisation. The result? Ageing can be expected to raise inflation and interest rates, bringing a slew of problems for an over-indebted world economy, but is also anticipated to increase the share of labour, so that inequality falls.
They argue that the power of labour will soon re-emerge, something former Fed Chair Arthur Burns blamed for the inflation of the 1970s:
"In a society such as ours, which rightly values full employment, monetary and fiscal tools are inadequate for dealing with sources of price inflation such as are plaguing us now-that is, pressures on costs arising from excessive wage increases"
Imagine a Fed chair saying that today?
Martin Wolf writes about the book today.
