This archived content originally appeared at, the predecessor site to, and does not carry the sponsorship of the Cato Institute.

New-Keynesian Thermodynamics

Once, while a good friend was visiting me on a particularly cold winter's night, the temperature in the poorly uninsulated living room of my old Victorian house dropped to a distinctly chilly 62 degrees.   "Can't you make it any warmer?" she asked?  "I'm afraid I can't," I said;  "the thermostat's already on 68."  "Try setting it at 80," she replied.

I didn't indulge her (well, not that way).  But I wonder whether those economists who have been calling for a higher inflation target would have.