Re: WTO and OPEC (question of Volker policy)

["Harvey, John T." <j.harvey@xxxxxxxx>]

I don't mean to detract from the original line of this thread (within
which I find myself largely on Paul's side), but I have a question
regarding Volker-nomics and the 1979-81 recession...

In inducing the recession, did he really make a conscious link between
the decline in US economic activity he was causing and the strength of
OPEC (as Paul appears to suggest below)?  I have always assumed that the
Fed was hanging on to some "inflationary expectations" view over that
period, and that they believed that the only means of reducing the rate
of price increases was to hold our collective heads under water for a
few years.  Then, of course, the collapse of OPEC solidarity (due in
large part to the Iran-Iraq war) was dumb luck, leaving the Fed with a
legacy of "success" and carte blanche to do whatever future damage to
the economy they could manage (something they appear to be warming up
for right now).

Am I way off?

John



paul davidson wrote:
SNIP...
> >The decreased dependence on oil is amply documented by the Fed Res.
>
> Reduction in oil as a percentage of GDP is partly due, of course -- to the
> relative fall in the price of oil via-a-vis other products in the 1990s.
> When oil as a percentage of GDP increases sharply for the calendar year
> 2000 (compared to 1998) what will the Fed. say then? The proportion of oil
> consumption to GNP (our income is probably more important for these
> purposes of comparison than our GDP) is bound to rise significantly as the
> 200% OPEC price jump redistributes income from oil consumers to OPEc and
> domestic oil producers (watch out Northeast -- Texas and Louisiana-- and
> Alaska -- are on the comeback trail -- and with Bush in the WH in
> 2001....). Only if the oil price increases produces inflation via cost of
> living adjustments (unlikely) etc-- will oil as a proportion of GNP not
> rise significantly -- as the inflation reflects an attempt to redistribute
> the income back again.
> But of course if that occurs watch out world hear comes Alan the inflation
> fighter who will not hesitate to create a global recession to fight
> inflation -- just as his predecessor Paul Volker did in 1979-1981 to take
> some of the demand side steam out of  OPEC's rent seeking ability
>
> Although we have much less manufacturing in the US than in the 1970s -- we
> still require significant quantities of petroleum -- not only for
> transporting those foreign imports further from source to market than when
> the products were produced domestically -- but for all the additional "new
> technology" services (how many ergs of energy does it take to keep all
> those computers and servers humming all day long 365 days a year?), for all
> the additional leisure-recreational activities since 1970s (after all the
> income elasticity of such activities is significantly larger than unity,


> SNIP

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