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The counterpoint is that we needed higher rates earlier to combat inflation before we had stagflation. My understanding is that with stagflation the better poli

by TimPC 4y ago

The counterpoint is that we needed higher rates earlier to combat inflation before we had stagflation. My understanding is that with stagflation the better policy is to accept the inflation. Raising interest rates combats inflation but also contracts the economy. Contracting the economy during a recession is extremely dangerous. As in start talking about the D-word dangerous. I think raising interest rates so aggressively now is poorly thought out and is going to bite us in the ass.

zozbot234 4y ago
> My understanding is that with stagflation the better policy is to accept the inflation. Accepting sustained inflation is always dangerous; it's exactly what we did in the 1970s. Letting it run up even further now just means a bigger recession later.
- TimPC 4y ago
  I still think it's the least bad option. I prefer two recessions to a depression.
  - whimsicalism 4y ago
    If you get sustained inflation, the ensuing contractionary policy will have to be much, much harsher than if you nip it in the bud. We are also not currently in recession, so I don't know what you mean about contracting while we are in a recession.
    - mpalczewski 4y ago
      First quarter gdp was negative, we could very well be in a recession and not know it.
      - whimsicalism 4y ago
        The fed should be targeting nominal GDP, which is currently way too high. First quarter GDP was negative because inflation expectations are running amok.
    - TimPC 4y ago
      What was the extremely harsh correction to the high inflation of the 1970s and 1980s. I don’t recall more than a minor recession in the 1990s. Perhaps you’re from a different reality than me?
      - whimsicalism 4y ago
        I am not sure why you think this would be in the 90s. Volcker is well known for his harsh correction, I don't really know what to tell you. We have lived through very unusual recessions recently, but that doesn't make the one in the 80s (where unemployment went over 10%) not bad. https://en.m.wikipedia.org/wiki/Early_1980s_recession_in_the_United_States https://en.m.wikipedia.org/wiki/Early_1980s_recession_in_the...
flunhat 4y ago
But isn't stagflation defined as high unemployment + high inflation? Whereas now we have low unemployment -- to the point of labor shortages -- and high inflation, i.e. an economy that is not in a recession. In other words, we have an economy running too hot, and raising interest rates will slow that (by how much is another question...)
- redleader55 4y ago
  Do we actually have high employment at the moment? The way I understand the current situation, one one hand there was a lot of covid money and on the other hand a lot of people were fired by their companies during covid. This in turn made them unwilling to go back and work the same job, on the same salary as before, for a company which preferred to cater to their profits than to their employees.
  - flunhat 4y ago
    It's true that companies are having a hard time finding employees. And it's also true that fewer people are in the workforce than before, largely due to retirements. So that paints a picture of an economy where there are plenty of jobs available and not enough people to work them, which is low unemployment. But high employment seems a little different to me than just low unemployment, just because my read is that there's fewer people working in general than before the pandemic (IIRC). [1][2] [1] https://www.uschamber.com/workforce/understanding-americas-labor-shortage https://www.uschamber.com/workforce/understanding-americas-l... [2] https://www.fitchratings.com/research/sovereigns/fittch-ratings-only-1-4-million-workers-to-return-to-us-labor-force-leaving-substantial-shortfall-25-01-2022 https://www.fitchratings.com/research/sovereigns/fittch-rati...
    - datadata 4y ago
      It seems like we have high employment but unemployment rate is being ravaged by Goodhart's Law after being such an important needle for politicians and the Fed itself. It doesn't seem like many of the employment options are good, but in order to keep unemployment down we have coerced our institutions to create low quality high quantity jobs.

by TimPC 4y ago

zozbot234 4y ago

> My understanding is that with stagflation the better policy is to accept the inflation. Accepting sustained inflation is always dangerous; it's exactly what we did in the 1970s. Letting it run up even further now just means a bigger recession later.

TimPC 4y ago
I still think it's the least bad option. I prefer two recessions to a depression.
- whimsicalism 4y ago
  If you get sustained inflation, the ensuing contractionary policy will have to be much, much harsher than if you nip it in the bud. We are also not currently in recession, so I don't know what you mean about contracting while we are in a recession.
  - mpalczewski 4y ago
    First quarter gdp was negative, we could very well be in a recession and not know it.
    - whimsicalism 4y ago
      The fed should be targeting nominal GDP, which is currently way too high. First quarter GDP was negative because inflation expectations are running amok.
  - TimPC 4y ago
    What was the extremely harsh correction to the high inflation of the 1970s and 1980s. I don’t recall more than a minor recession in the 1990s. Perhaps you’re from a different reality than me?
    - whimsicalism 4y ago
      I am not sure why you think this would be in the 90s. Volcker is well known for his harsh correction, I don't really know what to tell you. We have lived through very unusual recessions recently, but that doesn't make the one in the 80s (where unemployment went over 10%) not bad. https://en.m.wikipedia.org/wiki/Early_1980s_recession_in_the_United_States https://en.m.wikipedia.org/wiki/Early_1980s_recession_in_the...

flunhat 4y ago

But isn't stagflation defined as high unemployment + high inflation? Whereas now we have low unemployment -- to the point of labor shortages -- and high inflation, i.e. an economy that is not in a recession. In other words, we have an economy running too hot, and raising interest rates will slow that (by how much is another question...)

redleader55 4y ago
Do we actually have high employment at the moment? The way I understand the current situation, one one hand there was a lot of covid money and on the other hand a lot of people were fired by their companies during covid. This in turn made them unwilling to go back and work the same job, on the same salary as before, for a company which preferred to cater to their profits than to their employees.
- flunhat 4y ago
  It's true that companies are having a hard time finding employees. And it's also true that fewer people are in the workforce than before, largely due to retirements. So that paints a picture of an economy where there are plenty of jobs available and not enough people to work them, which is low unemployment. But high employment seems a little different to me than just low unemployment, just because my read is that there's fewer people working in general than before the pandemic (IIRC). [1][2] [1] https://www.uschamber.com/workforce/understanding-americas-labor-shortage https://www.uschamber.com/workforce/understanding-americas-l... [2] https://www.fitchratings.com/research/sovereigns/fittch-ratings-only-1-4-million-workers-to-return-to-us-labor-force-leaving-substantial-shortfall-25-01-2022 https://www.fitchratings.com/research/sovereigns/fittch-rati...
  - datadata 4y ago
    It seems like we have high employment but unemployment rate is being ravaged by Goodhart's Law after being such an important needle for politicians and the Fed itself. It doesn't seem like many of the employment options are good, but in order to keep unemployment down we have coerced our institutions to create low quality high quantity jobs.