Tuesday, September 1, 2020

Should We Fear A Reappearance Of Inflation?

 In today's Washington Post Robert J. Samuelson has raised the possibility that the Federal Reserve may be setting the US up for a reappearance of inflation.  He invoked the 1960s and 1970s when supposedly the Fed allowed inflation to get out of control out of a supposedly misguided effort to bring down unemployment by allowing successive small increases in inflation. Supposedly the newly released report on changed Fed policies may be taking us back to those bad old days, even though for now RJS admits that inflation is low, with expectations of inflation only at 1.34%.  How worried should we be?

OK, I am not going to say that a resurgence of inflation is impossible.  I can imagine it possibly resurging, with such a development perhaps being associated with a sharp decline of the US dollar, perhaps associated with a turn from its use as a reserve currency.  I do not see that happening immediately, but there is a theoretical literature that suggests that such an event could happen rather suddenly at some point.  If so, then maybe it could be happen.  Is the new Fed policy likely to bring this on?

I suppose one reason to be concerned is that the supposedly new policy approach has been rather opaque.  I have had trouble getting a clear picture what the changes are in policy. The main reports have been relatively undramatic, basically an idea that at least through the next year there will be no interest rate increases.  Probably a bigger deal is that the Fed might tolerate inflation higher than the 2% targeted rate.

But a curious thing is that a funny thing has happened about that target.  As long noted by Dean Baker and some others, that 2% is a target, meaning that supposedly that is what the rate should be on average.  If that is the case, then we should expect it to be higher than 2% as much as it is below that rate. But in practice it seems that the "target" has become an upper limit, and Samuelson essentially refers to it this way.  This makes for the rather weird outcome that a reassertion of what has long been offficial policy but not followed in practice should again be the official policy is somehow a scary threat of a possible outbreak of future serious inflation.  This becomes a rather absurd analysis.

Addendum (9/1): I note one area where we have seen rising prices is for food, with many people worried about that, indeed, I have just heard a poll showing this being the top worry of Americans during the current pandemic.  As it is, this seems to be at least one supply-side driven element in inflation that is out there, probably not so important for longer run inflation policy.

Barkley Rosser


Not Trampis said...

Can't disagree with you Barkes so I won't bother.

It seems to me a good policy to have higher inflation for a time for two reasons.
1) do not cut off the recovery when it arrives.
2) we know it is easy to reduce inflation than to increase it.

Fred C. Dobbs said...

(Both the Debt and the GDP are just numbers, however.)

The federal debt is on track to outpace US economy in 2021, budget office says

NY Times - September 2

The amount of U.S. government debt will nearly outpace the size of the nation’s economy in the 2020 fiscal year, the Congressional Budget Office said on Wednesday, a level not reached since the immediate aftermath of World War II and a direct result of the pandemic recession.

The federal budget deficit is expected to reach $3.3 trillion for the fiscal year, which ends on Sept. 30, the budget office said. Total debt held by the public is expected to reach an estimated 98 percent of the size of the economy — gross domestic product — for the year. It falls just short of equaling the size of the economy: The last fiscal year when the amount of federal debt was larger than the sum of the nation’s annual economic output was in 1946.

The budget office now expects the debt to exceed the size of the economy in fiscal year 2021. By 2023, it said on Wednesday, it expects the debt as a share of the economy to reach its highest level in American history, surpassing the World War II era. ...

Fred C. Dobbs said...

You Want Progressive Policies? You Need Progressive Taxes

NY Times – Kitty Richards and Joseph E. Stiglitz – September 3

Foolish federal dithering means states have to step in. Yes, even in the midst of a pandemic.

(Ms. Richards is a fellow at the Roosevelt Institute, where Mr. Stiglitz, a Nobel laureate in economics, is the chief economist.)

As the coronavirus pandemic — and Congress’s undersize response — wreaks havoc throughout the economy, tax receipts are cratering. This means that state and local governments are facing enormous revenue shortfalls at the exact time they are dealing with large additional demands. So far, states and localities have responded by slashing spending and jobs, with 1.5 million public-sector workers laid off by the end of June.

The federal government, which unlike most states does not have to balance its budget every year, could solve the problem tomorrow by providing fiscal relief to states and localities, like the $1 trillion provided by the HEROES Act that passed the House in May.

But regardless of whether Congress acts, states and localities can bolster their local economies and support their residents by raising taxes on those who have not been hard hit by the recession. This is not only the right thing to do from a humanitarian standpoint, it is sound economics.

Spending cuts are enormously harmful to the people who rely on government services and the public workers who lose their jobs. In a recession, cuts also damage the broader economy, causing layoffs to ripple through the community. …

Fred C. Dobbs said...

Trump: People (only in NC?) 'should
test the system by voting twice',
an illegal act.

Trump continues to urge people to vote by mail and in person

NY Times - September 3

President Trump on Thursday expanded on his suggestion that people in North Carolina stress-test the security of their elections systems by voting twice in the same election, a move state election officials have explicitly called out as a felony.

In a series of tweets Thursday morning, Mr. Trump sought to clarify his call for voters to both send in an absentee ballot and vote in person, arguing that by doing so, voters would provide a check against the mail voting system he has assailed and ensure that their vote was being tallied.

“In order for you to MAKE SURE YOUR VOTE COUNTS & IS COUNTED, SIGN & MAIL IN your Ballot as EARLY as possible,” he wrote on Twitter. “On Election Day, or Early Voting, go to your Polling Place to see whether or not your Mail In Vote has been Tabulated (Counted). If it has you will not be able to Vote & the Mail In System worked properly. If it has not been Counted, VOTE (which is a citizen’s right to do).”

Patrick Gannon, a spokesman for the North Carolina State Board of Elections, told The Times in an interview on Wednesday that officials would “strongly discourage voters from going to the polls on Election Day to find out whether their absentee ballot has been counted, especially since they can determine that at home.” ...

Reyna Walters-Morgan, the director of voter protection and civic engagement for the Democratic National Committee, said Thursday that Mr. Trump had “encouraged his supporters to commit voter fraud” and stressed that “voting by mail is a safe and secure way for Americans to participate in our democracy.” ...

As the number of people planning to mail in their ballots has increased, Mr. Trump has repeatedly made false claims about widespread fraud in mail voting. His latest suggestion, that voters commit that same sort of fraud he has denounced, is one he has discussed privately with aides in recent weeks amid concerns he is depressing turnout among his base by raising alarms about the security of the process.

With his advisers trying to tell him that he’s scaring his own supporters, including older voters, with his broad condemnations, he has sought to draw a distinction between universal mail voting and more limited absentee voting, in which the person is away from home or has a disability.

pgl said...


30-year Breakeven Inflation Rate (T30YIEM)

OMG – it is 1.7%! Hyperinflation beginning in 2050? Robert “no relationship to Paul” Samuelson