Comments on: Thoughts on Inflation

By: Andrew'

Andrew' — Thu, 15 Oct 2015 22:34:04 +0000

So, would ngdplt have prevented the housing bubble…or whatever caused the drop in ngdp?

By: EB

EB — Thu, 15 Oct 2015 19:04:06 +0000

Arnold,

I agree with all your points. I’d make a small change in the view that government deficits cause inflation, to argue that inflation is determined by how government deficits are financed (hyperinflation is caused by large deficits that can be financed only or mainly by printing money— see Colin Campbell and Gordon Tullock JEP 1954, and Phillip Cagan in Friedman 1956). In relation to your reference to Fischer Black, let me remember that Julio Olivera in the 1960s explained the structural view of inflation in Argentina and other LA countries by money passively supplied to meet an increasing demand for transactions in turn the result of adjustments in relative prices via a discretionary increase in the nominal price of foreign exchange, labor, or a staple.

Earlier today I read Sumner’s last post on his campaign for NGDP targeting (see http://econlog.econlib.org/archives/2015/10/reply_to_kevin.html ) which I regard as a rejection of all your points. I have never been able to take Sumner’s view of monetary policy seriously (it seems a poor restatement of Friedman’s failed framework for monetary analysis).

By: Andrew'

Andrew' — Thu, 15 Oct 2015 08:57:14 +0000

And if you guys are right, when do we start the beheadings?

By: Andrew'

Andrew' — Thu, 15 Oct 2015 08:55:50 +0000

Do they? I mean, I have no idea what is what, but don’t you guys see how this stuff can sound question beggy and tautological to non-true believers?

By: collin

collin — Wed, 14 Oct 2015 21:35:23 +0000

How about the demographics of the Baby Boom across the developed world? The 1970 inflation was caused by the huge increase in the workforce and high inflation was papering over lower wages. (Throw in politics of oil, the ending of sex & race discrimination as well as the success of Germany & Japan.) In reality, the Carter years had more net job creation per year than the Reagan administration.

So why do we have low inflation today? The Baby Boomershave crossing 50 and consuming less and the younger population is not filling in these positions. (In reality this should have happened at 2001 – 2006 but the housing boom papered over this) And look at the US job market we seem to have the worst economy ever with 5.1% Unemployment and drops in labor participation rates.

By: MikeP

MikeP — Wed, 14 Oct 2015 19:24:40 +0000

In general, then there is a regime with very low and stable inflation, and there is another regime with very high and variable inflation, and a necessary condition for the latter is high budget deficits.

But what if the Treasury Department just printed up $100 bills and left them in boxes on street corners? No accounting. No spending. Therefore no deficit. And no departure of the central bank from its charter either.

If it printed up a trillion of them, would there be hyperinflation? If it printed up a billion of them, would the economy hit an NGDP level target?

By: Lord

Lord — Wed, 14 Oct 2015 18:24:21 +0000

Multiple factors with varying levels of power and varying exertions of power.

By: Lawrence D'anna

Lawrence D'anna — Wed, 14 Oct 2015 14:55:15 +0000

X is supply and demand for the unit of account. The central bank has a powerful influence i on demand for money via expectations and IOR. And it has an infinite capacity to increase the supply.

By: Arnold Kling

Arnold Kling — Wed, 14 Oct 2015 14:51:47 +0000

the devaluation would have been inflationary. And I think that ultimately the wage-price controls were inflationary, also

By: Handle

Handle — Wed, 14 Oct 2015 14:23:31 +0000

Remember that the 1970s was also a period in which “money” as we knew it was radically changed by money market funds and the erosion of interest ceilings on deposits.

Do you think the "Nixon Shock" of the early 70's, closing the gold window, and the end of Bretton Woods had something to do with it?