inflation

[Doug Henwood]

The May 1 issue of the San Francisco Fed's Economic Letter has an article
by one J. Bradford DeLong (no space - I'm confused on this) called "The
Shadow of the Great Depression and the Inflation of the 1970s. Formed by
the Great Depression, a generation of policymakers and central bankers let
inflation get out of control. "Only after the experiences of the 1970s were
policymakers persuaded that the minimum sustainable rate of unemployment
attainable by macroeconomic policy was relatively high, and that the costs
- at least the political costs - of even moderately high one-digit
inflation were high as well.... By the end of the 1960s, the U.S. had
finished its experiment to see if it was possible to push unemployment
below 4% without accelerating inflation. The answer was 'no.'"

So, Brad, since you're here - is that "macroeconomic" a wiggle word? Are
there other policies that could make it possible to push U below 4%? Or can
the U.S. never get by with less than 5 million unemployed? What about that
political cost of inflation: some people's political costs (e.g., rentiers)
seem to carry more weight than others (e.g., the unemployed). And what
about the 4.3% U.S. unemployment rate now? Is that too low?

(The FRBSF Economic Letter is available at <http://www.frbsf.org>. Note
that the Fed branch banks use .org, not .gov, as their domain. This
parallels their phone book listings - in the white business pages, not the
blue government pages.)

Friday's mail also brought the FRB Minneapolis' Quarterly Review, which has
an article called "Zero Nominal Interest Rates: Why They're Good and How to
Get Them." That wonderful idea, inspired by Milton Friedman, requires
persistent mild deflation, to yield a positive real interest rate. Didn't
the FRB Mpls used to be a Keynesian outpost?

Doug