Re:An Infinite Regress. Of Dumb: More Reflections on “Market...
by grandalf on Monday March 16, 2015 @04:19PM
(#9214092)
That is true, but I think the counter-argument is that the Fed does much of what it does to create price stability, not price accuracy.
Prices should be generally stable in the face of everything but supply and demand shifts brought upon by technological change and competition. If the price of a car rose/fell 20% "accurately" (per your comment) every few years people would have to hedge against the risks that those price fluctuations would cause. Our system reduces the need to worry about such risks b/c they are viewed as unnecessary noise.
In other words, when prices are generally stable we can plan for the future rather than hedging against the impact of random (though market-based) price volatility.
Prices should be generally stable in the face of everything but supply and demand shifts brought upon by technological change and competition. If the price of a car rose/fell 20% "accurately" (per your comment) every few years people would have to hedge against the risks that those price fluctuations would cause. Our system reduces the need to worry about such risks b/c they are viewed as unnecessary noise.
In other words, when prices are generally stable we can plan for the future rather than hedging against the impact of random (though market-based) price volatility.