How many elites are giving up on economic dynamism, hence urging the Fed to adjust monetary representation downward, accordingly? In "What's Down With Inflation?", Tim Mahedy and Adam Shapiro argue that (expected) slow growth in healthcare prices is likely to remain a drag on inflation, and write:
We show that the key driver holding down acyclical inflation, and hence core PCE inflation over the past few years has been persistent changes to the health-care sector that began after the end of the recession. Specifically cuts to Medicare payment growth rates - which can affect prices throughout the health-care sector - have restrained health-care services inflation...Because health-care makes up a large share of PCE, price changes within this sector can have sizable effects on overall PCE inflation. We estimate that low inflation from this sector is currently subtracting about 0.3 percentage point from core PCE inflation, that is the measure that excludes food and energy prices. While health-care services inflation is expected to pick up in the coming years, it appears unlikely to return to its pre-recession level, which could restrain core PCE inflation for the foreseeable future.Note first that "slow growth in healthcare prices" refers to expectations for aggregate or overall levels. However, my primary concern for this post, is with how the Fed is responding to cutbacks in fiscal support for healthcare. Given this rationale, the Fed is effectively allowing political curtailments for specific aspects of knowledge use, to be a drag for the monetary support of all economic activity. Why should political considerations for healthcare provision, be treated by the Fed as a negative supply side shock - particularly a fiscal adjustment that could prove relatively permanent? Where is the standard monetary offset to such a circumstance?
As Jeffrey Rogers Hummel indicated in a recent interview with Dave Beckworth (episode #83), "Inflation targeting doesn't do well with supply side shocks." Consider why this matters. If a nominal level target were in place, the loss in government spending for healthcare would be offset by monetary spending in other parts of the economy. As things stand, reactions to political healthcare constraints as negative supply side shocks, could make monetary policy directly responsible for the arbitrary reduction of long term growth potential.
Alas, this policy response, which does not take aggregate spending capacity into account, is an unwarranted judgement call about "necessarily" reduced output in general equilibrium. Nevertheless: When central bankers react by reducing monetary representation due to specific sectors, other areas of aggregate spending are affected.
Indeed, this central banker response could be likened to a form of unnecessary or artificial austerity, via the assumption that private interests can't maintain economic dynamism, when Washington is reluctant to maintain fiscal spending in any capacity. Are our private sectors prepared for the political fallout, should taxpayers become convinced this is the case? Already, the problems of healthcare organizational capacity, have contributed to further attacks on capitalism, in general.
P.S. Again: It's important to emphasize overall market reductions as responsible for "lower" (?) inflation in this instance. Consider the illusion of "lost" inflation in an insured family context. From JAMA, "Challenges in Measuring the Affordability of US Health Care":
The average employer plan had a premium equal to 9.2% of the median income in 1999 and increased to 18.4% in 2014.Lane Kenworthy also recently noted marketplace limits in healthcare, when he stressed that "The share of wages going to benefits has been flat since the seventies (even though healthcare costs more), since - in aggregate - fewer employees receive healthcare benefits."
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