What will be the next economic reform gimmick policy to catch on in the U.S.?

[Kingpoleon]

I suspect zero inflation - as advocated by Bob Dole - might come back around.

[Kingpoleon]

Not anytime soon. Inflation remains low and almost unaffected by this year.

The proponents of zero inflation have traditionally said that low rates of inflation are the second best option, but there are some very authoritative economists who prefer zero inflation.

[Kingpoleon]

Then they are ivory tower idiots of the sort who thought bimetalism could work.

It has been repeatedly shown that it impossible to fix any economic value at a constant, so it is impossible to achieve sustained zero inflation. Moreover, any attempt to achieve such a thing is likely to bring about deflation which is far more damaging to economies than modest inflation. Yes, we do need to guard against hyperinflation, but deflation is at least as poisonous. Whatever the theoretical benefits of zero inflation might be, they are unachievable in reality.

Essentially zero inflation could become reality through a series of Fed targets. The GDP’s immediate decline would be 6%. But an annual permanent dividend of 1% would result, with a present GDP value of at least thirty percent.

See:
Martin Feldstein, Capital Income Taxes and the Benefits of Price Stability
Narayana Kocherlakota and Harold Cole, Zero Nominal Interest Rates: Why They’re Good and How To Get Them

[Kingpoleon]

Yes, I agree.  I was just trying to point out that all economic models, especially those based on mathematical calculations predicting the future, have built into them myriad assumptions.  So, if these studies show a 1% per year increase in GDP (or whatever the number was) where did the numbers come from that formulated this calculation.  What assumptions were behind the numbers?

I don't dismiss all economic forecasting, it depends on how far out they go and on how speculative they are, but with something this hypothetical, I think the calculations of future benefit need to be regarded with a great deal of skepticism.  

That is, of course, if it were even possible outside of academic models.  As you have correctly pointed out here, the Federal Reserve can not mandate zero inflation as if by waving a magic wand. They can have a zero inflation target, but from what the modeling posted here claims, it seems that it requires actual guaranteed zero inflation and not a zero percent target to achieve the hypothetical benefit.

Consistent inflation below 1% (near zero inflation) would presumably approach the benefits of actual zero inflation. Price stability is supposed to balance out the risk analysis of savings and investments. At .7% inflation, prices would double every ~99.5 years. It is also supposed to achieve that goal of wages outpacing prices even quicker than previously, because wages in a climate of stable prices can be increased almost solely through increasing a company’s efficiency. This would operate best if stock buybacks were restricted, forcing companies to use any increased funds in dividends, reinvestment, lower prices, higher wages, or some combination thereof.