walkitout (walkitout) wrote,

I think I've found someone saying what Krugman is so worried about

Krugman spends a lot of time arguing that people think the Fed should/is about to raise rates, and the Fed should not do this because of asymmetric risks associated with deflation (nearly unmanageable) vs inflation (just raise rates and it comes right down -- the inflation of the 1970s was in part an artifact of the Fed not being willing to raise rates (enough)). I think Krugman is maybe overselling the stupidity of commenters, but today I saw something on BI that was almost exactly the argument Krugman has been railing against. Go figure! That wasn't a Straw Man after all -- someone really is that stupid.

Here it is:


Tomas Hirst says:

"That is, rate hikes may be put on hold until people start seeing the benefits of growth in their take-home pay. Moreover, with global fears over the prospect of deflation gripping much of the developed world, the FOMC body could find itself under pressure to hold off rate hikes while inflation remains below target.

But there are big risks to this strategy. If the dip in inflation due to commodity-price falls helps to mask the underlying strength of the US economy, once they stop falling inflation could come surging back and be much more difficult to control."

The first of those two paragraphs is accurate. The second one is insane. This is the _low risk_ side to make the error on. And it's clear why Hirst is worried. Hirst's idea of scary inflation is ... 5%.

Ha ha ha ha ha ha ha.

See, here is the Big Scary time he refers to:

"The Fed most recently faced this problem in the 1980s, when low oil prices spurred runaway growth. The Fed took its eye off the ball at the time, leading to nearly 5% inflation by 1990."

One thing I've noticed about Millenials. The most recent bust doesn't seem to have freaked them out nearly as much as it has older cohorts. That is really puzzling to me, because Millenials are the ones really getting hurt by deflation/disinflation/low inflation/below trend growth, etc. Their student debt should be being erased by inflation. They should have jobs. And they should be enjoying better wages over time in a growing economy. I have to assume that at some point, they'll figure it out and get really mad and insist on pro-growth policies. Goddess I hope so.
Tags: our future economy today
  • Post a new comment


    default userpic

    Your reply will be screened

    Your IP address will be recorded 

    When you submit the form an invisible reCAPTCHA check will be performed.
    You must follow the Privacy Policy and Google Terms of use.