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Price Stability Beyond the Fed: A Symposium


Raúl Carrillo (@RaulACarrillo) is an Academic Fellow at Columbia Law School and the former Deputy Director of the LPE Project.

INFLATION! Welcome to “Price Stability Beyond the Fed—the LPE Blog’s symposium on the hottest topic in macroeconomics. 

During the pandemic, we have seen the prices of critical goods and services surge. Fear of inflation has now encouraged the Federal Reserve to raise the “Federal Funds Rate”—the major interest rate at which commercial banks borrow and lend reserves to each other overnight—in an attempt to (indirectly) cool down “aggregate demand” and thus broader economic activity, lest prices increase across the board. In the classic characterization of Milton Friedman, the Fed is aiming to avoid “too much money chasing too few goods.” Other central banks, while charting their own paths, are more or less operating with these assumptions.

Price stability is at the forefront of U.S. policy debate for the first time in decades. Mainstream economists focus squarely on monetary policy: should we ‘raise rates’ or not? How soon? How quickly? This view implies that central banks can and should treat the banking system as the main engine of economic growth, but “take away the punch bowl” (raise rates) to avoid inflation. In terms of practical impact, this means suppressing employment and wage demands.

More critical voices—paying closer attention to what is actually going on—have pointed out that rising prices mostly represent a series of bottlenecks in specific sectors, that government metrics of inflation are harmful, and that history offers examples of better ways to manage inflation.

Unfortunately, legal scholarship has had little to say about the political economy of “price stability” in some time. Lawyers, it seems, tend to forget the practical lessons of 1L Contracts—in which talk of production issues, failed payments, and bargaining power is central—and the broader context in which firms shape prices each day. At the same time, with few exceptions, analysis of the impact of public law on inflation has faded into the conventional wisdom of neoclassical economics.

Some scholars—from various disciplines—are moving toward richer and more satisfying analyses of the current moment. Over the next few weeks, our contributors will challenge the concept of a “general price level” as something that can be controlled most effectively through the regulation of a single price. First, Lev Menand will contextualize the power of the Fed over inflation policy, interrogating the mandate of the central bank. Karina Patricio and John Morris will then lead us “beyond the Fed”, into the deeper dynamics of monetary design and sovereign debt that shape prices internationally. I will have the privilege of interviewing Darrick Hamilton on inflation, race, and labor. Next, William Boyd, David Stein, and Devika Dutt will assess the governance of prices of energy, housing, and food (respectively). Finally, Rohan Grey will close the series with an affirmative proposal for managing finance, demand, and inflation in the context of an economic expansion like the Green New Deal, or other major policy proposals discussed on this Blog.