quite a pair of tales

imo all they
both reflect
is a pair of
re-actionary ideological agendas

both dead set on keeping fiscal policy
trapped
deep below
the surface
of the earth
like satan
in chains of adamantine prudence
and a pool of burning sleeze

----------

but to our tales

cutting to the chase

here are
"the perps"
of this poli econ con
crime of the half century

phase one 62-68

for meltzer the old saw:

monetizing the fiscal debt

why ?

too keep low nominal rates
and scotch crowding out
and
thus keep
private borrowing for investment vigorous
beyond its natural bounds

for romer :
t'is the swingin 60's fairy tale

we can have
ice cream for breakfast
ice cream for lunch
ice cream for dinner

consequence free

win win

over full employment indefinitely

ie culprit
the shaggy ideas
of a hegemonic keynesian "new economics"

built in the late 40's and 50's by
arm patched
bow tied
academics
like p samuelson and r sollow

but that only gripped the brains
of anglo american policy circles
some where in the early to mid 60's

wow !!!!!

phase two

meltzer still at his old drum tatoo
monetized deficits

but now romer

has the macro tool impotence theory

and the outlines of a natural rate

but cleverly
the policy guys
set
the rate
way way to low

despite the flagrant
indications
of accelerating inflation

ienew fed chief
burns fit the "science" to the executive agenda

( btw
burns
in both narratives comes off as a dope or a dupe
or a stooge
or any combination of the three
and he deserves every particle of this abuse)

miller is amateur hour
a final
full dress fool's turn
to top all b4 off

and then its
rescue time
as the iron duke arrives
and finally gives the naughty
rogue economy
the great big nasty
bear hug
credit squeeze
any " great inflation"
needs
and that one had
needed
for maybe 12 years

beyond the whale bone sized lesson

decent and fearsome unemployment must be maintained
both
as a constant threat
and an episodic reality
at all costs

--------
ps
why i like romer

she actually thinks
the egg heads were listened to
in the lbj and nixon white houses

fuck
we all know damn well

both of these guys
wanted monetary
to utilize "wisdom "

expressed in another curve

the trade off between
unemployment and votes

-------------

what i see
is no white house till reagan's politically
confident enough
to sustain large fiscal deficits
and thus
they all
johnson carter nixon ford
all of em
resorting to monetary policy
to stimulate the "real "economy
and spit out more jobs
or enough jobs
depending on the party

a task
monetary policy
performs
about as well as
i resist
raised donuts

the odd thing here

it was fiscal policy that got scrapped
in the post mortem sum ups
ever since

first
the demise of fiscal fine tuning

then the demise of activist
fiscal macro itself

yup fiscal policy took
the rap
for the sins
of
monetary policy

--------

note on
the grsay squeeze

all that changed
changed
because
jimmy carter
showed how dangerous
do the right thing
guts and ignorance can be
when he green lighted
his own vote suicide
by letting
herr volcker
take the economy
thru the hellish gauntlet
he suggested was
"the only way out
of stagflation "

whip the flation
like a blonde goat
and keep the stag

i say now in hind sight
what i said at the time

we shoulda
whipped
the stag
and kept
the flation
till it tapered down all by itself
how ever long and slow that process might have been

------------
btw
the true answer to all this nasty down side higher inflation
with sustained
too high employment

a mark up market

abba lerner proposed just such a beast
as this
"nightmare "
all came to a pin head in 79-80

but that's another rashomon
nice exchange here

excessive detail aside

tg has a point

the change in the price level over all
and the wage level over all
is really what we mean by inflation

the jockeying of relative prices and wages
is another matter

i guess one could make the argument
a higher rate of inflation might accelerate these adjustment processes
but say a change in relative real wage is not per se
the fault of general inflation

as a policy inflation can be used
to benefit either of the two big economic classes
a case in point
inflation in russia in the 90's
was the main tool
of blasting away the wage class

the problem ...
neither class prefers this policy to several others

its resorted to
when all else is not possible
either technically or politically

to the point and a repeat

fiscal policy was never during this period
free to close the over all production gap

btw tg

those gap numbers smell of herb stein institute

too low too useful

though i love your
flat out challenge
that despite the two negative "data points"

they tell no republican tales

but i fear they are meant to
and can in able diabolic hands ....

but all measures of unexaminable
limits
capacity potential inflation
etc they aremain fabrications
even in the best hands
they reflect "the intentions"
of their fabricators
like that lovely sharp toothed chimera
the natural jobless rate

the contest is to make your chimera look more real then the other guy's chimera

(note to file:
i'm i becoming post modern ????)
give a pol a choice between
an inflation increase
and a tax increase
which might he/she more likely choose ????

tax increases take guts
for a pol
he/she might get voted out of office
lbj looking to run again
like nixon later
didn't want to "pay"
for his foreign war "that way "

martin i think quite reasonably
bent to the masters will

prolly thinking
we'll clean this up in the next policy cycle

but enter burns next cycle and ....

yes burns is a very bad feller to me

a super k of credit
nothing more ferociuos and irresponsible
when "in power"
then a seedy academic

the huge contraction of 74-75
i suspect surprised the worlds financial "leaders"

gold anchors away commodity prices roaring
the rank and file wage class
looking crazier
the the march hare (hard to believe now eh ??)

i think they all freaked out

easiest way to swallow the large relative price adjustments
a freshet in the global dollar credit supply

not so stupid
maybe the right sensible " class " move

it was a very different social climate

since then
i think like the really insignifigant weimar bubble up
this has been used as a munich of macro policy

it wasn't
and the way its narrated by the pundits
there are no good lessons
to learn from it
only bad ones

Posted by: paine | Link to Comment | Apr 21, 2007 6:11:44 AM

paine says...
recall martin was of the generation of bureaucrats
that knew what a fed was when
it was run by the executive branch
and the congress
he witnessed the post war inflation
far higher at points then the "great" inflation
he in fact became chairman circa 1950
with a new dispensation (like volcker)
under truman ...independent rate setting

and we fought the korean war that way

martin was a very fine fed chair
looking down from wall street

he i think felt if he didn't accomodate lbj
in 66-67
the fed might lose its independence
better to bend to "jacksonian" idiocy then to pull
a czar nicky biddle
force a show down
and risk a congress driven fed "recapture"
by the pols
i think romer gestures toward this point albeit fecklessly