Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Wednesday, February 24, 2010

Deficits and Inflation -- No Relationship

In comments, J raised the question about time lags, as related to economic measurements.  This is timely, since It's pretty clear that the economic results for 2009 belong largely to Bush II.  The current President, B. Hoover Obama is doing far too little in the current climate, so 2010 and beyond belong to him and the DemoPublican Congress, just like they have taken ownership of the Bush wars.

My guess is that this, like everything else in economics, is non-constant.  In the kind of economic doldrums we are now experiencing, the delay preceding a first order effect could be years.  And there may be lingering and/or cumulative effects over far greater time spans.  Recovery from the bottom of the other great depression took from 6 to 20 years, depending on how you chose to define things.  (I'm in the 7 to 8 year camp, if you're curious.)

With all of that in mind, here is a closer look at inflation and deficits since 1990.  This is based on more recent data than the previous post.  I carelessly grabbed 2005 data for deficits, and recent years were estimated.  Estimates through '08 were actually pretty close.  But this graph is based on more recent data from the Congressional Budget Office.

This is mainly for information.  I have no particular ax to grind or conclusion to draw at the moment, other than to say that if there is a relationship between inflation and deficits, it is quite elusive. The correlation coefficient for the data spanning from 1951 to 2009 is -0.0468, which is no correlation at all.


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