Re: Re: Speaking of uncle Miltie

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

At 12:47 PM 09/08/2001 -0500, you wrote:
> Uncle Miltie is wedded to the fallacy that stable prices are a panacea
> for other problems. Instead, shouldn't the goal of a true monetarist be
> stable price changes? That is, whether inflation is 0% or 5% or 100%
> per year, the exact percentage is unimportant, so long as the same rate
> applies every year, throughout the sectors of an economy, so that all
> economic actors will be able to adjust in relation to an expected
> change.

strictly speaking, you're right. But the MF loves _low_ and stable
inflation rates because he fears that high rates can feed on themselves, to
become higher.

> Maybe I'm wrong here, but I think one of the causes of the US economic
> crisis is Greenspan & Co's effort to sharply increase interest rates in
> 1999 and 2000. At that time, the prospects were vary low of any sharp
> deviation from the accustomed 2-4% inflation rate. Maybe Greenspan
> wanted to achieve 0% inflation, but in so doing, has helped ruin his
> own crown jewel: the new economy.

There are good arguments that the benefits of the "new economy" was highly
exaggerated, i.e., that the surge of labor productivity growth was
mis-measured, so that the recent US government estimates are more reasonable.

The way in which US individual, external,and (to a lesser extent) corporate
indebtedness were increasing -- the Three Bears attacking the Goldilocks
economy -- suggests that the boom was unsustainable. (Godley & Izureta's
(sp?) view is similar.) That in turn suggests that Alan the G's interest
rate hikes determined only the _timing_ of the bubble's collapse.

> A further regrettable impact of Greenspan's hawkish anti-inflation
> policy has been to overly strengthen the dollar. This has contributed
> to the ongoing huge current account deficit,

the high dollar was _also_ due to the bubblish boom itself (as folks abroad
wanted to get a piece of the action). Further, the current account deficit
corresponds to an inflow of funds, which fed the bubble (by allowing
individuals and corporations to borrow).

> and correspondingly the
> continued eroding of the important manufacturing sector in the American
> economy.

it also hurt the other exporting sectors.

>  (I wouldn't call for a drastic decline in the dollar's value.
> A modest reduction since 1999 would have been successful).

right. If the dollar falls drastically, it represents a shock to the US
economy and also to the world.

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