Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Inflation – Tall Tales and True Causes

Comments

  • see last link in SS cola thread
  • El Erian, 09 Aug. They're sneaking in commercials now, at the end. Advertising THEMSELVES, in this case. "The Fed is already late, tapering..."
  • Nice piece by GMO. It's basic enough that at most all one needs is Econ 101, not macro, to follow. But by the same token, it may be glossing over some things.

    For example:
    The impact of fiscal deficits on the economy is complicated and requires careful analysis. For this reason, we see no simple correlation between fiscal deficits and inflation
    It then shows a scatter plot with an R² of essentially zero.

    But it declines to graphically illustrate the textbook Keynesian view of deficits that it presented earlier:
    whether this [fiscal deficit] activity is inflationary depends on how much potential output is available in the economy. If the economy is experiencing sluggish growth or a recession, then an increase in fiscal spending by the government will simply get the economy growing again.
    It could plot fiscal balance vs. inflation restricted to periods when economic growth is above a given threshold. That would illustrate what the paper acknowledged: at times deficits are inflationary. Rather than being constructive, it chooses to shoot down a simple strawman.

    In presenting the aggregate supply/aggregate demand curves, it presupposes that government stimulus would increase demand from AD_2 to AD_3. But earlier it acknowledged that rather than increasing spending (demand), this time the government stimulus didn't have that effect::
    when it comes to fiscal policy, this time was different. Typically, when money is distributed to people it results in an increase in spending. But during the pandemic, we saw a massive increase in the personal savings rate when the government sent out checks (see Exhibit 9).
    It would have been nice had GMO had connected current data to theory a bit more tightly. It would have gotten to the same place, but then we'd have been reading a 30 page paper instead of an 11 page one.
Sign In or Register to comment.