Photo

I know all you young whippersnappers don’t remember ancient history, but a long time ago, in a galaxy far, far away — well, actually, in 2011, and right here on planet Earth — oil and other commodity prices were rising, not falling. As a result, headline inflation was running fairly high. Some of us argued that core inflation was a much better guide to monetary policy, and the Fed agreed; but inflationistas were going wild, and in Europe the ECB decided, disastrously, to raise interest rates.

So now that oil is plunging, the same people who saw rising oil as a reason to raise rates should see falling oil as a reason for expansionary policy, right?

Why, no. They’re telling us not to pay attention to low headline inflation, which they say is just oil (although it isn’t), and anyway, falling oil prices are a stimulus.

So when oil is going up, it’s a reason to tighten policy, and when it’s going down, it’s a reason not to loosen policy.

And people wonder why I talk about sadomonetarism.