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David Beckworth sums up a lot of recent economic history in one figure.
A few thoughts: I wish Arnold Kling were correct that inflation is around the corner. We could use some inflation to get back on track. Nominal wages are simply not flexible enough to get the job done in short order and there is much to fear from populist backlash.
See also the link above for a remarkably similar figure for the OECD which illustrates the US's role of monetary hegemon.
Posted by Alex Tabarrok on November 5, 2009 at 06:51 AM in Data Source, Economics | Permalink
'We could use some inflation to get back on track.'
Irving Fisher on the phone, prof. Tabarrok. And I think his call took less than 49 seconds to place, by the way.
Posted by: not_scottbot at Nov 5, 2009 7:01:30 AM
Excuse my ignorance but what's "nominal" all about?
Posted by: tom s. at Nov 5, 2009 7:57:46 AM
The U.S.' demographics don't as yet support a return to inflation (assuming that there is a demographic component to spending that affects its rate.)
Posted by: Ironman at Nov 5, 2009 8:03:12 AM
Until we have considerable wage increases in the U.S., we are going to face a world where the only attractive investments are trading opportunities.
Posted by: Mike S at Nov 5, 2009 8:28:31 AM
I don't have hard numbers, but I feel that we could help defeat deflation by lifting immigration barriers and restrictions. Wouldn't that be the most painless way?
Posted by: stinkaroo at Nov 5, 2009 8:36:26 AM
Is there a reason why the y-axis has a different scale for negative and positive numbers? Other than the obvious, that it is an attempt to make the situation seem much more dramatic than it is?
Posted by: ASG9000 at Nov 5, 2009 8:51:39 AM
the scales are the same. I do not see your problem.
Posted by: spencer at Nov 5, 2009 9:11:44 AM
I'm working under the current theory that we had inflation, but it was just hidden. Hidinflation.
Posted by: Andrew at Nov 5, 2009 9:15:23 AM
I think we're experiencing inflation right now....asset price inflation. I agree though that we could use a little inflation in goods prices/wages.
Posted by: Tim at Nov 5, 2009 9:46:37 AM
Better comparison would be US nominal consumption vs non-US OECD nominal consumption.
U.S. consumption being something over 50% of OECD consumption is of couse driving the OECD trend.
Posted by: Mark at Nov 5, 2009 10:40:06 AM
how does inflating the money supply improve our mix of productive capital? And how does price inflation of goods improve our standard of living?...when food prices, health care and tuitions rise it decreases my standard of living. Of course silver gold and oil price increases are good for me because I am betting that the dollar will continue on it's path to 3rd world status. Too many spineless idiots running this country and the Fed.
Posted by: Gabe at Nov 5, 2009 10:50:53 AM
Depends on the source of inflation. If inflation is caused by oil price spike, consumer discretionary spending will collapse as it did last year. Along with an oil price spike, you would expect a rapidly declining dollar and an increase in imported commodity prices. If inflation is of domestic origin and confined to domestic products (housing, office buildings) with domestic debt attached to them, or services, then fine: but, how would have such inflation when we are operating at 65% of capacity?
I would worry more about commodity inflation with the following bad scenario: commodity prices increase worldwide, Chinese manufacturers absorb the commodity inflation and do not raise prices, and US domestic manufacturers, unable to raise prices, go out of business.
From an optics perspective, it would not look like the Chinese manufacturers "cut" prices, but, because they did not pass on commodity increases, the effect would be the same in real terms.
More to the point of your post, I believe Larry Summers wrote a piece on how inflation might be a good thing in this situation, but so far I couldn't find it.
Posted by: Bill at Nov 5, 2009 11:37:31 AM
You should compare this to my chart of Labor's Share of nominal output in my post on productivity at Angry Bear.
http://angrybear.blogspot.com/
Posted by: spencer at Nov 5, 2009 12:07:24 PM
May I be explained what this is all about? What does the picture teach us that is interesting? Or thoughtful? Or original? Or even barely coherent?
I am thick, I do not get it ...
Posted by: Michele Boldrin at Nov 5, 2009 12:41:18 PM
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