Or alternatively, the lack of recessions causes an increase in inflation; recessions as an inflation correction mechanism.
Scientician that I am, looks like the steady slope of inflation begins in the mid 70s, not just in the Greenspan era. I don't suppose someone can draw an inflection point between the slopes 1945-1975 and 1975-2007 to check?
The increase in slope begins in the 70s (think "gasoline crunch"). The greenspan reference was just to point towards monetary policy and away from fiscal policy. Even with the Federal Reserve's "adjustments" to CPI numbers, we're on a curve to double prices every 20 years. And since we're not all starving, that implies that we've also been receiving a lot more money than we used to. (Bill Cosby is on record talking about his "seventeen thousand dollar Ferrari" back in the 60s.) This should make anyone wonder: where on earth is all this money coming from?
I was wondering if the gasoline crunch was related to the uptick in slope. Was that early 70s? I was way too little to remember what happened in the 70s, but I thought the big gas crunch was during Carter's administration.
As for where all the money is coming from, I'm not an expert on macroeconomics, but since you commented on monetary policy, maybe the US govt. has been printing enough money to meet the "created wealth" from growth in the economy.
I wonder...can you get CPIs for other countries that have had similar monetary policies and see if they got inflation as well? It would be an interesting economic study.
Honestly, CPIs are largely useless anyway. Price increases are a symptom of inflation: inflation is an increase (and therefore devaluation!) of the money-supply. What you'd want to look for (and are readily available for many places) are M3-monetary aggregates (which we suspiciously stopped producing last year!). This includes not only all the physical cash, but all the other cash-equivalents like the bazillion forms of loans etc that are out there.
Inflation causes bubbles: it "creates" assets of decreasing value (the money itself) which are then shifted into other non-monetary assets. But as the shifting occurs, these assets suffer demand-based price inflation that eventually gets corrected either through stagnation (while the general monetary inflation catches up over a long-run -- see Japan) or via a crash like we endured in the stock market. It's too early to tell which housing will be, but so far 16 sub-prime lenders have shut their businesses since December (http://ml-implode.com/), which is interesting.
That's one thing I was wondering, about the chart saying "all items..."
Inflation was definitely a 70s thing, and Carter's WIN ("Whip Inflation Now") was a great slogan until he got caught using it in the middle of a recession.
Mid-19thc, stealing 20 bucks was a good way to get hanged.
"all items" meaning not excluding food or energy (which the fed likes to call "volatile" but really likes to exclude because consumers are so close to these prices that they can't massage them much).
Well, I don't think they're evil or anything. In some ways it's really congress's fault, as they have an impossible charter. Unlike other central banks, they're not only supposed to keep the currency stable, but they're also supposed to ensure the health of the economy (by which it's almost always understood to mean SHORT-TERM economic conditions). Since tightening interest rates always slows down economic activity, they faces a fracas whenever they do their job. But if they don't do their job, they get excoriated and lose public confidence. It's a lousy hand that neither you nor I would want to play.
The compromise for them is to fixate the public on consumer/producer price stability (ignores asset inflation!) and to invent bastardizations like hedonic adjustments to allow them to fiddle with fuzzy CPIs instead of using real inflation numbers.
By the way, in case you've been wondering how we as a generation can have such enormous (middle-class) salaries compared to our parents yet still be so indebted, this's your answer. True (monetary) inflation has been around 7% for some time now.
When I have talked to members of my parents generation who bought houses at prices that would make you think they bought a shotgun shack today I quickly figured out how much inflation has occurred.
The sad thing is that even with a salary that is 1.5x what my parents make it still doesn't go very far, and seems to go a little less every year. What concerns me more is that more and more people are getting salaries which are LESS than what are parents started with when you go with inflation adjusted dollars, but they look like more only on paper.
"Whip Inflation Now" was Ford, not Carter. His speech of the same name was delivered on October 8, 1974. "WIN" buttons were often worn upside-down to poke fun at the program and Ford.
16 comments:
So, Reagan and Post-Reagan economic policies (writing with a broad marker) consistently result in higher inflation, and less recessions?
Besides inflation being serious, I don't quite get it.
Here's a hint: don't think Reagan, think Greenspan.
Or alternatively, the lack of recessions causes an increase in inflation; recessions as an inflation correction mechanism.
Scientician that I am, looks like the steady slope of inflation begins in the mid 70s, not just in the Greenspan era. I don't suppose someone can draw an inflection point between the slopes 1945-1975 and 1975-2007 to check?
The increase in slope begins in the 70s (think "gasoline crunch"). The greenspan reference was just to point towards monetary policy and away from fiscal policy. Even with the Federal Reserve's "adjustments" to CPI numbers, we're on a curve to double prices every 20 years. And since we're not all starving, that implies that we've also been receiving a lot more money than we used to. (Bill Cosby is on record talking about his "seventeen thousand dollar Ferrari" back in the 60s.) This should make anyone wonder: where on earth is all this money coming from?
I was wondering if the gasoline crunch was related to the uptick in slope. Was that early 70s? I was way too little to remember what happened in the 70s, but I thought the big gas crunch was during Carter's administration.
As for where all the money is coming from, I'm not an expert on macroeconomics, but since you commented on monetary policy, maybe the US govt. has been printing enough money to meet the "created wealth" from growth in the economy.
Very interesting plot.
The government's been printing the money all right. That's why we had a stock-market bubble and why we're watching housing do its thing too.
I wonder...can you get CPIs for other countries that have had similar monetary policies and see if they got inflation as well?
It would be an interesting economic study.
Honestly, CPIs are largely useless anyway. Price increases are a symptom of inflation: inflation is an increase (and therefore devaluation!) of the money-supply. What you'd want to look for (and are readily available for many places) are M3-monetary aggregates (which we suspiciously stopped producing last year!). This includes not only all the physical cash, but all the other cash-equivalents like the bazillion forms of loans etc that are out there.
Inflation causes bubbles: it "creates" assets of decreasing value (the money itself) which are then shifted into other non-monetary assets. But as the shifting occurs, these assets suffer demand-based price inflation that eventually gets corrected either through stagnation (while the general monetary inflation catches up over a long-run -- see Japan) or via a crash like we endured in the stock market. It's too early to tell which housing will be, but so far 16 sub-prime lenders have shut their businesses since December (http://ml-implode.com/), which is interesting.
(oh, the reason I called CPIs largely useless is because the data is so heavily massaged by the Fed)
That's one thing I was wondering, about the chart saying "all items..."
Inflation was definitely a 70s thing, and Carter's WIN ("Whip Inflation Now") was a great slogan until he got caught using it in the middle of a recession.
Mid-19thc, stealing 20 bucks was a good way to get hanged.
"all items" meaning not excluding food or energy (which the fed likes to call "volatile" but really likes to exclude because consumers are so close to these prices that they can't massage them much).
And I thought I was cynical.
Apparently I'm not cynical enough about economic matters. Very very interesting....
Well, I don't think they're evil or anything. In some ways it's really congress's fault, as they have an impossible charter. Unlike other central banks, they're not only supposed to keep the currency stable, but they're also supposed to ensure the health of the economy (by which it's almost always understood to mean SHORT-TERM economic conditions). Since tightening interest rates always slows down economic activity, they faces a fracas whenever they do their job. But if they don't do their job, they get excoriated and lose public confidence. It's a lousy hand that neither you nor I would want to play.
The compromise for them is to fixate the public on consumer/producer price stability (ignores asset inflation!) and to invent bastardizations like hedonic adjustments to allow them to fiddle with fuzzy CPIs instead of using real inflation numbers.
By the way, in case you've been wondering how we as a generation can have such enormous (middle-class) salaries compared to our parents yet still be so indebted, this's your answer. True (monetary) inflation has been around 7% for some time now.
When I have talked to members of my parents generation who bought houses at prices that would make you think they bought a shotgun shack today I quickly figured out how much inflation has occurred.
The sad thing is that even with a salary that is 1.5x what my parents make it still doesn't go very far, and seems to go a little less every year. What concerns me more is that more and more people are getting salaries which are LESS than what are parents started with when you go with inflation adjusted dollars, but they look like more only on paper.
And both parties are hip deep in the process, too.
"Whip Inflation Now" was Ford, not Carter. His speech of the same name was delivered on October 8, 1974. "WIN" buttons were often worn upside-down to poke fun at the program and Ford.
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