My endorsement of deflation was reckless and irresponsible from the standpoint of the Federal Reserve's interests. But not from the standpoint of working people.
Businessmen are concerned with a certain stability, or well-anchored expectations, of wages, prices and interest rates, for example. Whereas working people are concerned about job security and unemployment. The Federal Reserve System is charged with the responsibility of attending to the concerns of businessmen. As the new new chairman of the Federal Reserve, Ben S. Bernanke, said in a speech before the National Economists Club, titled "Deflation: Making Sure 'It' Doesn't Happen Here": "The Congress has given the Fed the responsibility of preserving price stability (among other objectives) which most definetly implies avoiding deflation as well as inflation." Greenspan has kept inflation low, and Bernanke promises to do the same.
Bernanke's first task, according to the NYT, is to tame inflation, that is, to make prices fall--"Airfares, haircuts, nursery school tuition, new cars, appliances and cigarettes have all become more expensive in recent months," notes David Leonhardt of the NYT. Core inflation has hit 2%. Consumer prices have risen. $50 gas-tank charges are "crimping" consumer spendin -- but deflation is not in the offing now. To tame inflation, Bernanke will have to raise interest rates, with the expectation that it will hit 4.5% by April, up from 3.75% today.
But here's the revealing truth about how most economists and the Federal Reserve think about working people in relation to the economy: the reasons inflation has not been much greater have to do with, and I quote from the same NYT article, "the weak negotiating position of American workers...Union membership has shriveled, computers have replaced many jobs and, rationally or not, many workers fear that their jobs will be sent overseas." We have avoided an "inflationary spiral" at the cost of a more "complicated life for many families." And, if Bernanke does his "task" well, more such "complications" are expected.
Whose interests are being served by the Federal Reserve? Probably not yours.