Re: Re: Economists surprised???

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

At 09:48 AM 12/21/00 -0800, you wrote:
> I think that the excessive belief in the new economy gave the Fed the
> confidence to allow unemployment
> to fall below the supposedly NAIRU limits.

I believe instead that the Fed is groping in the dark. They don't know what
the NAIRU is (or whether it exists) or what the economy's "speed limit" is.
They were pushed to grope below the NAIRU that they believed in by
political pressure from industry, etc. Some of that political pressure was
backed up by "new economy" optimism. (They really should call it the "New
Era," don't you think? after all, that's what they called the 1920s back then.)

> I believe it also gave the Fed fear that the economy had much more vigor
> than it did when they laid a series of interest rate hikes over and beyond
> what was necessary to slow the economy down.

I would replace the word "vigor" with "robustness." I'd say that growth
during the last 4 years or so has been at a high rate -- but fragile, in
the sense that it was prone to recession, rather than robust.  (To the
extent that growth is based on rising private debt ratios, it's fragile.
It's sort of like Minsky's concept, but applied to the "real" economy.)

Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine