tion are inextricably linked. And as with all inherently political issues, consensus is difficult, if not impossible, to achieve.But, political characteristics do provide flexibility. In some countries, high rates of inflation have clearly been compatible with rapid economic growth and fast rising standards of living. In such cases, it is quite reasonable to suggest that higher rates of inflation are acceptable--perhaps even necessary. In this setting, it is by no means clear that pursing a policy to stop moderate inflation is either required, or in the best interests of the mass of the population at all. While inflation guarantees that some will gain at the expense of others, the redistributions of income and wealth which do take place can, on normal value grounds, be quite desirable. In other circumstances, it may be quite desirable to place strict controls on inflation, or strive to keep it at ‘zero’ level. Policies aimed at virtual price stability have been in use by central banks in Europe, New Zealand, and Canada over the past few years. Such policies have been particularly focused in Canada. As noted by Pierre Fortin, “the only objective the Bank of Canada has pursued since 1989 has been to establish and maintain the inflation rate at ‘zero level’, which it sees as a CPI inflation rate that is clearly below two percent” (italic added). To the surprise of many, it has been incredibly successful, achieving its objective several years before schedule. Although separated by only a few percentage points, Canada’s policy is a sharp contrast to the moderate and balanced approach used in the U.S. “Since 1989 the Federal Reserve has been satisfied with achieving an inflation rate of around 3 percent. In setting the interest rate, it has continued to pay explicit attention to real economic growth and employment, with the result that the U.S. unemployment rate is currently in the ...
