June 2, 2008


A return of that 70s show? (Paul Krugman, June 2, 2008, NY Times)

Not long ago it seemed as if everyone watching the carnage in financial markets was drawing scary parallels with the 1930s.

This time, however, Ben Bernanke and his colleagues at the Federal Reserve did what their predecessors failed to do during the banking crisis of 1930-31: They acted forcefully to avert a collapse of the financial system. And their efforts seem, provisionally, to have worked. [...]

You see, fears of a 1930s-style financial meltdown are apparently out; fears of 1970s-style stagflation are in. And the Fed stands accused of being soft on inflation.

The emerging conventional wisdom, if what I heard is any indication, is that Bernanke has been fighting the wrong enemy all along: inflation, not financial collapse, is the real threat. And to head off that threat, the critics say, the Fed has to reverse course and raise interest rates - never mind the risks of recession.

So this seems like a good time to declare that the new conventional wisdom is all wrong. We're not watching a rerun of that 70s show - and the misguided belief that we are could do a lot of harm.

It's true that the soaring prices of oil and other raw materials have led to public anguish over the rising cost of living. But this time around there's no sign whatsoever of the wage-price spiral that, in the 1970s, turned a temporary shock from higher oil prices into a persistently high rate of inflation

...if just a few more brain cells die he'll be Stupid enough to vote Republican in November.

Posted by Orrin Judd at June 2, 2008 1:44 PM
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