I came into economic consciousness in 1972, and was an observant witness of the break-up of Bretton Woods, and the subsequent Great Inflation of the late seventies. I watched as Paul Volcker and other central bankers went to war against inflation and, by controlling money growth, began the process by which global inflation was exterminated by the 1990s. That was the seminal monetary experience of my generation: the slow strangling of the inflation monster.
The heroes of this era were the central bankers who had the sang-froid to stand up to the pleasure-seeking politicians and to impose recession on the masses in order to break the “wage-price spiral”, as it was known at the time. The measure of a central banker became his ability to impose pain in the face of popular hatred, and thus restore monetary discipline. These heroes won that war; they killed the snake.
Thus, the standard by which central bankers have been measured since the eighties has been their commitment to “price stability”, the most heroic version of which is zero inflation, the Holy Grail. Indeed, today all of the world’s central banks have an explicit price stability mandate. Mark you: not an inflation-targeting mandate, a price-level targeting mandate, a nominal growth mandate, or an NGDP-level mandate. No: price stability, in all its austere glory.