Showing posts with label 1970s. Show all posts
Showing posts with label 1970s. Show all posts

Saturday, February 06, 2021

Inflation Worries and the 1970s

 The debate over the proper size of the Covid bill often gets into inflation--will a bigger federal debt cause greater inflation.  I've commented somewhere that while any inflation will take a while to show up, based on our experience in the 1970s it takes a long time for policymakers to react and fight it.  

Expanding on that--we do have the experience of the 70's to guide us, and we know that very high interest rates a la Paul Volcker will stifle inflation albeit at the cost of a recession.  Another factor I'd consider--in the 70's unions had more power than now.  The industrial sector was much more important in the economy, and unions had considerable power in that sector.  I think it's also true that union contracts had been written in a way to cope with inflation, at the cost of adding to inflationary pressures. Globalization has come a long way since the 70s, so presumably it's harder for an economy to go its own way and inflate.  Finally, a big part of the inflation then was the effect of OPEC finding its power, resulting in much higher prices for oil.  Today we don't have any cartel with similar power over a critical factor in the economy, and oil specifically and energy generally are less important economically.