Suasion, Sure, But Is It Really Moral?

One of the concepts educators sort of snuck into the curriculum was something they called “moral suasion”. This term has meanings outside of Economics, but within the discipline, it refers to one key element to the monetary policies of central banks. Basically, persuading markets or economic groups to act in the way officials want using rhetoric or threats without having to resort to overt and explicit means.

If central bankers have walked softly all these years, the so-called big stick they told you they carried with them was what Ben Bernanke had openly talked about the government’s “printing press” all the way back in November 2002. People took him literally when he was really doing this as a way to more forcefully back up the rhetorical method of moral suasion. If you fight the Fed, he was saying, then you’ll be sorry.

So don’t fight. Please.

This thing is powerful that it can conjure the exact mode necessary at just the right time. Under threat of deflation, the very subject of his talk, that would mean a forcefully inflationary path back to growth and health; and if it gets to that, you better get out of the press’ way. As Bernanke put it:

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. [emphasis added]

You no doubt recognize Jay Powell’s “digital money printing” and “flood” in what his predecessor’s predecessor was claiming.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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