The economic landscape, like the topographical landscape, has different realms. Just as there are mountains, plains, deserts, frozen wastes and swamps, there are times of prosperity, boom, bust, chaos, and depression. (This list is intended to be illustrative, not exhaustive, and no specific analogies to topographic features is expressed or implied.)
An intelligent mountain climber does not go to work in scuba gear; nor does one explore the desert in a parka. Appropriate actions at any given place in time take into account the season, general environment and local conditions. Austerity at a time of disinflation teetering on deflation is not only stupid, it is willfully ignorant.
Anyway, end of lecture. Here, I make my case that inflation is a dragon long dead. Whether Volker actually killed it or not, he was standing there at its side, sword in hand, when it's flame was snuffed.
Illustrating the Bubble.
Commodity Shocks, A key difference, then vs. now.
Response to deficits, another key difference.
Ditto.
Where we are now.
Ditto.
Reditto. From Beckworth, referenced here.
I rest my case.
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6 comments:
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"Here, I make my case that inflation is a dragon long dead."
Looks to me like three of your first four links make the case that "there is no meaningful correlation between Federal budget deficits and inflation." ... "if there is a relationship between inflation and deficits, it is quite elusive."
Link #2 says there was a change in the early 1980s.
Links 5 and 6 say there ain't no inflation.
Link 7, the graph, shows an impressive relation between Personal Consumption Expenditures and CPI, though I don't know whether that is Beckworth's point in link 8.
Link 9 says there ain't no recovery.
In the first link you say
The large deficits under Bush did not correspond to high inflation. I attribute this to powerful secular deflationary forces that countered the inflationary thrust of the deficits.
But you do not identify the powerful secular deflationary forces. ((And, somehow, despite yourself, you manage to assume that the deficits do carry an "inflationary thrust".))
I can accept Link 2's claim that there was a change in the early 1980s. And I can see your argument, that before the change deficits were inflationary and since the change they are not, and that since the change there is no inflation and there is no recovery (or, that growth has atrophied to the point that now, when a recession ends, there is no recovery). I can accept that analysis.
But the fact that inflation "went away" doesn't mean it is gone for good. Look what the Link 7 graph shows: If PCE turns upward for more than a brief moment, the CPI will turn upward as well. So, basically, if the economy does what you want, you should expect the return of inflation.
When I made those posts, I was not concentrating on stagflation, so I didn't make any explicit point about it. But the graphs there show that inflation has been on the decline since 1980, or so.
In the first post (Feb 23, 2010) I had not yet studied inflation vis-a-vis deficits in any detail. In link 4 - posted the next day - I explicitly say deficits and inflation - no relationship.
The point of link three was that there was an apparent relationship only for little more than a decade, from mid 60's to late 70's. Not so in the 50's or even the 40's, not so since. There was a concurrent rise in the 60's which was coincidence, not correlation.
I am not contending that inflation is gone forever. I am saying that there are secular trends across decades, and we are now in a disinflationary trend that could slip into actual deflation, like the 30's. In fact, that is the clear and present danger.
The lock step with PCE is 5 yrs of data in a certain realm. That could be coincidence as well. Sure, my point - that core inflation is dead - is different from Beckworth's.
Low and declining inflation is not a condition of stagflation. Yes, we have stagnation. No, we do not have inflation. Ergo, we do not have stagflation.
This will not last forever. There will be inflation again some day. Such is the cyclic nature of life and the economy. But it's not going to happen any time soon. And when it does, it will very likely be with economic growth, and the stagnation will be over - for a while
Why are you arguing this with me?
Cheers!
JzB
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"Why are you arguing this with me?"
Because this answer does not satisfy me:
"Such is the cyclic nature of life and the economy."
(Wasn't all that much of a disagreement, really. Was mostly an attempt to piece together the nine links in your post into one statement.)
"The lock step with PCE is 5 yrs of data in a certain realm. That could be coincidence as well."
Yeah, five years. But doesn't look so much like a coincidence here.
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The stagflation thing is important to me because it sort of captures what the economic problem is, in my view.
Or, the shifting of the Phillips curve. Same problem. Inadequately explained by Friedman, I think.
The price increases are only supposed to happen, as Anna Schwartz explains, as capacity limits are approached.
To me, this is evidence that the forces which created stagflation are still in control of our economy:
"The Fed has consistently been restrained in its measures to boost the economy because the whining of the inflation hawks." -- Dean Baker
Art -
At this point, I think it's best that I just give up.
Cheers!
JzB
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