Ben Bernanke and the Pringles Problem

Health care aside, I really think we need more focus on the fact that the nation’s top economic policymaker recently said something extremely problematic that doesn’t at all appear to have been a “gaffe” or a mistake. To recapitulate, Brad DeLong asked Ben Bernanke why doesn’t fight unemployment by setting a three percent inflation target. Bernanke didn’t deny that this would reduce unemployment. Bernanke didn’t say he had a different, better way of reducing unemployment. Instead he said he didn’t want to fight the actually existing problem of mass unemployment because he thought doing so might make it more difficult to fight hypothetical future inflation.

Paul Krugman unloads on this a bit and Scott Sumner has an excellent technical discussion of the problems with Bernanke’s answer. And Will Wilkinson delivers a potent metaphor about the weird way that Bernanke conceded that DeLong’s approach would work “in theory” but he doesn’t want to do it anyway:

I guess we could call it the “Pringles Problem”: Once you pop, you can’t stop! Bernanke seems to think that if the Fed tries to increase long-term inflation expectations once, a fair portion of the public will suspect that the Fed won’t be able stop, will act on the expectation of runaway inflation, and everything will go to shit. Or something like that. Or, in Bernanke’s words, “such a policy could cause the public to lose confidence in the central bank’s willingness to resist further upward shifts in inflation, and so undermine the effectiveness of monetary policy going forward.”

OK. But I believe that the Fed can eat just one. Bernanke believes the Fed can eat just one. (NB: The “Pringles Problem” is extensionally equivalent to the “Lay’s Problem.”) But some significant part of the “the public” does not. How exactly does one measure the public’s position on the Pringles/Lay’s Problem? How exactly does one assess the public’s “confidence” in the Fed’s willingness to resist upwards shifts in inflation, such that one could assess the risk that a one-time bump in the inflation target will dangerously undermine this confidence? Is there survey evidence about this? Anything? If the Fed can’t credibly signal a commitment to a theoretically sound monetary policy, why not? Is it that Ron Paul will start doing handsprings and all the hucksters hawking gold on Glenn Beck will go bananas if the Fed even flinches? (Wouldn’t it be interesting if goldbug catastrophism helps prevent the very inflationary eschaton it banks upon?) Or what?

Yes, quite.

Less vividly, you’ve no doubt heard a lot of talk about the importance of central bank independence. Ben Bernanke talks about the importance of central bank independence. Barack Obama and Larry Summers and Tim Geithner seem to believe in central bank independence so strongly that they won’t comment on this whole issue. Economists overwhelmingly believe in central bank independence. So do elite journalists. And the whole reason for central bank independence is supposed to be to provide a credible solution to this Pringle problem. Bernanke has a lot of power and a lot of independence and now is the time to put them to use.