Tuesday, November 2, 2010

Krguman's Ass(umptions)

Why Inflation Targets Need To Be High (Wonkish)

Suppose, first of all, that higher inflation — or more accurately, higher expected inflation — could lead to a lower rate of unemployment, like this:

Why would we suppose that? The 1970s had generally rising inflation and generally rising unemployment.

But how do you get inflation? Only by having a full-employment economy. So there’s a reserve relationship — a Phillips curve — which might look like this:

It might look like that. It might not. Why does my chart using actual historical data look so much different than his chart that uses only economic theories and assumptions? Could someone please explain that to me?

The Failed Keynesian Phillips Curve



Higher priced oil did not generate prosperity in America in the 1970s. It did not generate prosperity in the late 2000s. By all means let's try again though. Third time's the charm!

13 comments:

Fatboy said...

Twas the night before QE2, when all through the house
Not a creature was stirring, not even a Wall St banker louse

The stockings were hung by the chimney with care
In hopes that Ben Shalom soon would be there

Blankfein and Dimon were nestled all snug in their beds
While visions of free money danced in their heads
http://fatboysez.blogspot.com/2010/11/night-before-qe-2.html

Stagflationary Mark said...

Fatboy,

When what to my wondering eyes should appear
Paul Krugman screaming, print more Ben, have no fear


Hahaha!

I've added you to my blog list. :)

Stagflationary Mark said...

I'm working my way through your posts by the way. For some strange reason I was drawn to this one, lol.

Krugman continues to make no sense

Krugman continues to argue for mo' money though the bailed out US banks are stuffed to their gills with cash. Demand is needed, not more cash on bank's balance sheets. And as Obama said "there is no such thing as shovel ready projects." So I don't see where Krugman is going with this.

I might be biased, but that is fantastic commentary.

Fatboy said...

Thank you for the add. I am honored to be in your presence. You want to go bowling?

Fatboy

mab said...

Why does my chart using actual historical data look so much different than his chart that uses only economic theories and assumptions? Could someone please explain that to me?

Stag,

I think Krugman is trying to suggest something about the duality of man:

http://www.youtube.com/watch?v=4VHKpGJX29s

Or perhaps he's a propagandist with an adgenda.

Stagflationary Mark said...

Fatboy,

Our very small farming community actually had a bowling alley. Go figure!

I'll let fate decide if we should bowl. Where are you located?

The odds would not seem good that two random people on the Internet would be within bowling distance of each other.

It would be similar to Krugman's theories working in the real world I would think, lol.

Stagflationary Mark said...

mab,

Perhaps Krugman is to Nobel Prize winning economists as Nobel Prize winning economists are to long term capital management.

You know the joke but I offer this for those who don't.

Long-Term Capital Management

The firm's master hedge fund, Long-Term Capital Portfolio L.P., failed spectacularly in the late 1990s, leading to a massive bailout by other major financial institutions, which was supervised by the Federal Reserve.

...

LTCM was founded in 1994 by John Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Board of directors members included Myron Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences.

Paul Krugman's Nobel Prize

The prize was awarded before the U.S. presidential elections raising speculation that political considerations affected the Nobel committee's decision.

Bailouts and speculation do go hand in hand.

Fatboy said...

North Georgia. You? I'm envious of you, living in a small farming community.

Stagflationary Mark said...

Fatboy,

I live in Western Washington now (just outside of Seattle).

I grew up in Eastern Washington (town of 800).

Seattle to Georgia

At 50 cents per mile, I figure it would cost $2,794 to make the trip if I drove there. Just so I have an accurate figure, how much is the shoe rental? Hahaha! :)

By the way, my girlfriend grew up in Tennessee. Although I did not drive, I have made the trip several times by plane to see her family. LONG trip.

I actually went bowling when I was there! No joke.

AllanF said...

Hmm, that Phillips Curve looks like a steaming pile of horse manure to me.

Troy said...

Comparing the 1970s to now is tough.

The baby boom was turning 20 in 1975. Women were entering the workforce. America had to actually actively expand to make room for all these new households.

All this new earning power meant GDP growth and increasing borrowing capacity, and thus inflationary monetary growth.

Stagflationary Mark said...

AllanF,

LOL! It does look like that. That's solid horse @#$% analysis though. I ass(ure) you! :)

Stagflationary Mark said...

Troy,

Combining the very best of the deflationary Great Depression and the inflationary 1970s since... well, the crisis began and then some.