http://www.nytimes.com/2009/06/15/opinion/15krugman.html?emc=eta1
http://online.wsj.com/article/SB124458888993599879.html
For those of you who know me, you are aware that I would not ordinarily espouse Paul Krugman and his "Conscience of a Liberal" NYT web site as a place where I'd hang my hat. However; since the worldwide financial crisis, Krugman has made sense where many of the rest of those who occupy his profession have not. Again, since the worldwide financial crisis has ensued, Krugman would be the only economist who's won a nobel prize. Krugman is also a semi-regular guest on the ABC-TV Sunday show hosted by George Staphanopoulis that competes in the time slot with Meet the Press. When he's on that show, he's good and it gets real interesting when he and George Will discuss points on economics, politics, etc.
Krugman's OP-ED in today's NY Times (attached) responds to those who now advocate that we need to shut down "stimulus" efforts because of the potential for hyper-inflation. He uses Arthur Laffer's article in the Wall Street Journal (also attached) as an example of those who are yelling that "the sky is falling". Krugman is right: the sky is not falling. For those of us who ignore economic history (the lessons of the Great Depression), we are doomed to repeat our mistakes. Now is no time to shut down our stimulus efforts. Just because we have some "green shoots", doesn't mean we are out of the woods (see 1937). For those of you who love that "macroeconomic" stuff, Laffer's perspective that we should panic at the rapid rise of the "monetary base", see the period between 1929 and 1939 when our monetary base doubled and prices DROPPED 19%. As usual, Krugman has it right.
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is stagflation possible, again?
ReplyDeleteStagflation: an economic condition of both continuing inflation and stagnant business activity, together with an increasing unemployment rate) describes the new "possible" economic malaise.
In the 1970s's, inflation seemed to feed on itself. People began to expect continuous increases in the price of goods, so they bought more. This increased demand pushed up prices, leading to demands for higher wages, which pushed prices higher still in a continuing upward spiral. Labor contracts increasingly came to include automatic cost-of-living clauses, and the government began to peg some payments, such as those for Social Security, to the Consumer Price Index, the best-known gauge of inflation. While these practices helped workers and retirees cope with inflation, they perpetuated inflation. The government's ever-rising need for funds swelled the budget deficit and led to greater government borrowing, which in turn pushed up interest rates and increased costs for businesses and consumers even further. With energy costs and interest rates high, business investment languished and unemployment rose to uncomfortable levels.
I don't think you can compare previous data to today's situation. Although I haven't done much research on this, it seems based on the article, the monetary base of today is at an unprecedented level.
ReplyDeleteAlso, during those periods, prices may have dropped, but what about after those times, especially after a war? The prices/inflation seem to have jumped, during those periods.
With all this money floating around, you can count on one thing and that is greed. I really think that we may experience something similar, or worse, to what dale had commented about in the '70s. People will want higher wages, companies will increase their prices and eventually the fed will step in and increase interest rates similar to the '80s, if not worse.
Thought you might find this interesting, as it somewhat relates to this post:
ReplyDeletehttp://www.nytimes.com/2009/06/17/world/europe/17bric.html?scp=2&sq=russia&st=cse
Will our dollars mean anything for future companies that want to globalize? Then again is it safe to say that most countries depend on us, so eventually when we start spending more they will come crawling back to us asking for business?