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June 16, 2010 at 3:44 PM #567063June 16, 2010 at 3:49 PM #566066briansd1Guest
[quote=Diego Mamani]If inflation was so easy to fine tune using policy tools, why did it get so awfully out of control in the 1970s?
[/quote]This paper looks back at the 1970s.
http://www.federalreserve.gov/pubs/feds/2005/200502/200502pap.pdfI’m hoping that the Fed learned the lessons of the 1970s and won’t repeat the mistakes.
When the Fed decides to flight inflation in the future, we may see big rate increases rather than incremental moves.
The record suggests that the reform was adopted when the FOMC became convinced that its earlier
gradualist strategy using finely tuned interest rate moves had proved inadequate for fighting inflation and reversing inflation expectations.Chairman Volcker proposed a qualitative definition of price stability:
A workable definition of reasonable “price stability” would seem to me to be a situation in which expectations of generally rising (or falling) prices over a considerable period are not a pervasive influence on economic and
financial behavior. Stated more positively, “stability” would imply that decision-making should be able to proceed on the basis that “real” and “nominal” values are substantially the same over the planning horizon — and that planning horizons should be suitably long. (Volcker, 1983, p. 5)June 16, 2010 at 3:49 PM #566164briansd1Guest[quote=Diego Mamani]If inflation was so easy to fine tune using policy tools, why did it get so awfully out of control in the 1970s?
[/quote]This paper looks back at the 1970s.
http://www.federalreserve.gov/pubs/feds/2005/200502/200502pap.pdfI’m hoping that the Fed learned the lessons of the 1970s and won’t repeat the mistakes.
When the Fed decides to flight inflation in the future, we may see big rate increases rather than incremental moves.
The record suggests that the reform was adopted when the FOMC became convinced that its earlier
gradualist strategy using finely tuned interest rate moves had proved inadequate for fighting inflation and reversing inflation expectations.Chairman Volcker proposed a qualitative definition of price stability:
A workable definition of reasonable “price stability” would seem to me to be a situation in which expectations of generally rising (or falling) prices over a considerable period are not a pervasive influence on economic and
financial behavior. Stated more positively, “stability” would imply that decision-making should be able to proceed on the basis that “real” and “nominal” values are substantially the same over the planning horizon — and that planning horizons should be suitably long. (Volcker, 1983, p. 5)June 16, 2010 at 3:49 PM #566672briansd1Guest[quote=Diego Mamani]If inflation was so easy to fine tune using policy tools, why did it get so awfully out of control in the 1970s?
[/quote]This paper looks back at the 1970s.
http://www.federalreserve.gov/pubs/feds/2005/200502/200502pap.pdfI’m hoping that the Fed learned the lessons of the 1970s and won’t repeat the mistakes.
When the Fed decides to flight inflation in the future, we may see big rate increases rather than incremental moves.
The record suggests that the reform was adopted when the FOMC became convinced that its earlier
gradualist strategy using finely tuned interest rate moves had proved inadequate for fighting inflation and reversing inflation expectations.Chairman Volcker proposed a qualitative definition of price stability:
A workable definition of reasonable “price stability” would seem to me to be a situation in which expectations of generally rising (or falling) prices over a considerable period are not a pervasive influence on economic and
financial behavior. Stated more positively, “stability” would imply that decision-making should be able to proceed on the basis that “real” and “nominal” values are substantially the same over the planning horizon — and that planning horizons should be suitably long. (Volcker, 1983, p. 5)June 16, 2010 at 3:49 PM #566781briansd1Guest[quote=Diego Mamani]If inflation was so easy to fine tune using policy tools, why did it get so awfully out of control in the 1970s?
[/quote]This paper looks back at the 1970s.
http://www.federalreserve.gov/pubs/feds/2005/200502/200502pap.pdfI’m hoping that the Fed learned the lessons of the 1970s and won’t repeat the mistakes.
When the Fed decides to flight inflation in the future, we may see big rate increases rather than incremental moves.
The record suggests that the reform was adopted when the FOMC became convinced that its earlier
gradualist strategy using finely tuned interest rate moves had proved inadequate for fighting inflation and reversing inflation expectations.Chairman Volcker proposed a qualitative definition of price stability:
A workable definition of reasonable “price stability” would seem to me to be a situation in which expectations of generally rising (or falling) prices over a considerable period are not a pervasive influence on economic and
financial behavior. Stated more positively, “stability” would imply that decision-making should be able to proceed on the basis that “real” and “nominal” values are substantially the same over the planning horizon — and that planning horizons should be suitably long. (Volcker, 1983, p. 5)June 16, 2010 at 3:49 PM #567068briansd1Guest[quote=Diego Mamani]If inflation was so easy to fine tune using policy tools, why did it get so awfully out of control in the 1970s?
[/quote]This paper looks back at the 1970s.
http://www.federalreserve.gov/pubs/feds/2005/200502/200502pap.pdfI’m hoping that the Fed learned the lessons of the 1970s and won’t repeat the mistakes.
When the Fed decides to flight inflation in the future, we may see big rate increases rather than incremental moves.
The record suggests that the reform was adopted when the FOMC became convinced that its earlier
gradualist strategy using finely tuned interest rate moves had proved inadequate for fighting inflation and reversing inflation expectations.Chairman Volcker proposed a qualitative definition of price stability:
A workable definition of reasonable “price stability” would seem to me to be a situation in which expectations of generally rising (or falling) prices over a considerable period are not a pervasive influence on economic and
financial behavior. Stated more positively, “stability” would imply that decision-making should be able to proceed on the basis that “real” and “nominal” values are substantially the same over the planning horizon — and that planning horizons should be suitably long. (Volcker, 1983, p. 5)June 16, 2010 at 3:52 PM #566076Rich ToscanoKeymasterdavelj, in the graph of household net worth you linked to:
– inflation was rising during a long-term decline in household wealth as a % of gdp in the late 60s and 70s
– inflation fell pretty consistently during the big runup in household net worth from the late 80s to the early oughtsI’m just noting that a secular decrease in household net worth can happen over an inflationary backdrop, and an increase in net worth over a disinflationary one.
Anyway, to your question: I don’t know what the number is either. But I feel pretty confident that whatever it is, they’re going to go past it. That is the nature of the pressures in our political system (run by hyper-keynesians who only care about getting elected and a voting populace that is over-indebted and unwilling to take short-term economic pain).
June 16, 2010 at 3:52 PM #566174Rich ToscanoKeymasterdavelj, in the graph of household net worth you linked to:
– inflation was rising during a long-term decline in household wealth as a % of gdp in the late 60s and 70s
– inflation fell pretty consistently during the big runup in household net worth from the late 80s to the early oughtsI’m just noting that a secular decrease in household net worth can happen over an inflationary backdrop, and an increase in net worth over a disinflationary one.
Anyway, to your question: I don’t know what the number is either. But I feel pretty confident that whatever it is, they’re going to go past it. That is the nature of the pressures in our political system (run by hyper-keynesians who only care about getting elected and a voting populace that is over-indebted and unwilling to take short-term economic pain).
June 16, 2010 at 3:52 PM #566682Rich ToscanoKeymasterdavelj, in the graph of household net worth you linked to:
– inflation was rising during a long-term decline in household wealth as a % of gdp in the late 60s and 70s
– inflation fell pretty consistently during the big runup in household net worth from the late 80s to the early oughtsI’m just noting that a secular decrease in household net worth can happen over an inflationary backdrop, and an increase in net worth over a disinflationary one.
Anyway, to your question: I don’t know what the number is either. But I feel pretty confident that whatever it is, they’re going to go past it. That is the nature of the pressures in our political system (run by hyper-keynesians who only care about getting elected and a voting populace that is over-indebted and unwilling to take short-term economic pain).
June 16, 2010 at 3:52 PM #566791Rich ToscanoKeymasterdavelj, in the graph of household net worth you linked to:
– inflation was rising during a long-term decline in household wealth as a % of gdp in the late 60s and 70s
– inflation fell pretty consistently during the big runup in household net worth from the late 80s to the early oughtsI’m just noting that a secular decrease in household net worth can happen over an inflationary backdrop, and an increase in net worth over a disinflationary one.
Anyway, to your question: I don’t know what the number is either. But I feel pretty confident that whatever it is, they’re going to go past it. That is the nature of the pressures in our political system (run by hyper-keynesians who only care about getting elected and a voting populace that is over-indebted and unwilling to take short-term economic pain).
June 16, 2010 at 3:52 PM #567078Rich ToscanoKeymasterdavelj, in the graph of household net worth you linked to:
– inflation was rising during a long-term decline in household wealth as a % of gdp in the late 60s and 70s
– inflation fell pretty consistently during the big runup in household net worth from the late 80s to the early oughtsI’m just noting that a secular decrease in household net worth can happen over an inflationary backdrop, and an increase in net worth over a disinflationary one.
Anyway, to your question: I don’t know what the number is either. But I feel pretty confident that whatever it is, they’re going to go past it. That is the nature of the pressures in our political system (run by hyper-keynesians who only care about getting elected and a voting populace that is over-indebted and unwilling to take short-term economic pain).
June 16, 2010 at 3:54 PM #566086Nor-LA-SD-guyParticipantThe essence of Krugman’s argument is that we are not watching a rerun of the 1970s because this time round there is no mechanism for creating a price-wage spiral. That is because unions are now dead so that workers are unable to ask for wage increases that match prices. As an example, Krugman contrasts the United Mine Workers contract of 1981 which bargained a three year 11% annual average wage increase with current conditions. Where now are the unions demanding 11% a year increases?
Indeed, where are the unions, period?
Today’s reality is indeed characterised by absence of a price-wage spiral mechanism, and it is the reason why the Fed’s easy monetary policy is unlikely to cause general inflation. However, that raises a critical additional point.
Recognising that the inflation of the 1970s was the result of a price-wage spiral triggered by conflict with unions over income distribution, compels rejection of the theory of the natural rate of unemployment. This theory has dominated economists’ thinking about inflation for over a generation and has twisted public thinking.
http://www.guardian.co.uk/commentisfree/2008/jun/18/useconomicgrowth.economy
June 16, 2010 at 3:54 PM #566184Nor-LA-SD-guyParticipantThe essence of Krugman’s argument is that we are not watching a rerun of the 1970s because this time round there is no mechanism for creating a price-wage spiral. That is because unions are now dead so that workers are unable to ask for wage increases that match prices. As an example, Krugman contrasts the United Mine Workers contract of 1981 which bargained a three year 11% annual average wage increase with current conditions. Where now are the unions demanding 11% a year increases?
Indeed, where are the unions, period?
Today’s reality is indeed characterised by absence of a price-wage spiral mechanism, and it is the reason why the Fed’s easy monetary policy is unlikely to cause general inflation. However, that raises a critical additional point.
Recognising that the inflation of the 1970s was the result of a price-wage spiral triggered by conflict with unions over income distribution, compels rejection of the theory of the natural rate of unemployment. This theory has dominated economists’ thinking about inflation for over a generation and has twisted public thinking.
http://www.guardian.co.uk/commentisfree/2008/jun/18/useconomicgrowth.economy
June 16, 2010 at 3:54 PM #566692Nor-LA-SD-guyParticipantThe essence of Krugman’s argument is that we are not watching a rerun of the 1970s because this time round there is no mechanism for creating a price-wage spiral. That is because unions are now dead so that workers are unable to ask for wage increases that match prices. As an example, Krugman contrasts the United Mine Workers contract of 1981 which bargained a three year 11% annual average wage increase with current conditions. Where now are the unions demanding 11% a year increases?
Indeed, where are the unions, period?
Today’s reality is indeed characterised by absence of a price-wage spiral mechanism, and it is the reason why the Fed’s easy monetary policy is unlikely to cause general inflation. However, that raises a critical additional point.
Recognising that the inflation of the 1970s was the result of a price-wage spiral triggered by conflict with unions over income distribution, compels rejection of the theory of the natural rate of unemployment. This theory has dominated economists’ thinking about inflation for over a generation and has twisted public thinking.
http://www.guardian.co.uk/commentisfree/2008/jun/18/useconomicgrowth.economy
June 16, 2010 at 3:54 PM #566801Nor-LA-SD-guyParticipantThe essence of Krugman’s argument is that we are not watching a rerun of the 1970s because this time round there is no mechanism for creating a price-wage spiral. That is because unions are now dead so that workers are unable to ask for wage increases that match prices. As an example, Krugman contrasts the United Mine Workers contract of 1981 which bargained a three year 11% annual average wage increase with current conditions. Where now are the unions demanding 11% a year increases?
Indeed, where are the unions, period?
Today’s reality is indeed characterised by absence of a price-wage spiral mechanism, and it is the reason why the Fed’s easy monetary policy is unlikely to cause general inflation. However, that raises a critical additional point.
Recognising that the inflation of the 1970s was the result of a price-wage spiral triggered by conflict with unions over income distribution, compels rejection of the theory of the natural rate of unemployment. This theory has dominated economists’ thinking about inflation for over a generation and has twisted public thinking.
http://www.guardian.co.uk/commentisfree/2008/jun/18/useconomicgrowth.economy
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