أسرار السياسة النقدية

Jul 4, 2019 Robert J. Barro

كمبريدج ــ كان ترويض التضخم في الولايات المتحدة والعديد من الدول الأخرى منذ منتصف ثمانينيات القرن العشرين من السمات البارزة التي ميزت التاريخ الاقتصادي لفترة ما بعد الحرب. قبل ذلك، كان معدل التضخم (استنادا إلى معامل انكماش الإنفاق على الاستهلاك الشخصي) يبلغ 6.6% سنويا في المتوسط خلال السبعينيات، ثم تجاوز 10% في الفترة من عام 1979 إلى 1980.

في أوائل ومنتصف سبعينيات القرن العشرين، حاول الرئيسان ريتشارد نيكسون وجيرالد فورد كبح جماح التضخم بالاستعانة بمجموعة مضللة من ضوابط الأسعار والتحفيز، جنبا إلى جنب مع الكبح النقدي المعتدل. ولكن بعد ذلك جاء الرئيس جيمي كارتر، الذي قام بعد الحفاظ على هذا النهج في مستهل الأمر بتعيين بول فولكر رئيسا لمجلس الاحتياطي الفيدرالي الأميركي في أغسطس/آب من عام 1979. وتحت قيادة فولكر، سرعان ما بدأ بنك الاحتياطي الفيدرالي في رفع أسعار الفائدة الاسمية القصيرة الأجل إلى أي مستوى قد يكون لازما لخفض التضخم.

تمسك فولكر، مدعوما من الرئيس رونالد ريجان بعد يناير/كانون الثاني من عام 1981، بهذا النهج، على الرغم من المعارضة السياسية الشديدة، وفي يوليو/تموز من نفس العام ارتفع سعر الفائدة على الأموال الفيدرالية إلى 22%. ونجحت هذه السياسة: فقد سجل التضخم السنوي انخفاضا حادا إلى 3.4% في المتوسط في الفترة من 1983 إلى 1989. كان بنك الاحتياطي الفيدرالي راضيا تمام الرضا عن ما أصبح يُعرَف في وقت لاحق بمسمى "مبدأ تايلور" (أو ربما يكون المسمى الأنسب "مبدأ فولكر")، والذي بموجبه يزيد سعر الفائدة على الأموال الفيدرالية بما يتجاوز الارتفاع في معدل التضخم.

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0 Comments on this paragraph, 40 Comments on this article

Derrick Baragwanath Jul 29, 2019

I suspect the lack of inflation has a great deal to do with the US$ increasingly becoming the premier global currency in a growing global economy. In a closed economy if money supply exceeds production inflation will ensue. This is still painfully apparent in places like Zimbabwe and Venezuela. For the US to experience inflation money supply must exceed global production, not just American production. While the US$ maintains its position as the major world currency America can continue to print money in excess of domestic production. This money is transferred to US banks by the Federal Reserve and they in turn re-distribute it around the world, doing very well out of this exercise in the process. I suspect the benefit to the US of being in this privileged position is massive. Wish I had a printing press in my basement!
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Gunnar Eriksson Jul 12, 2019

The inflation after the war was fuelled by ordinary peoples increased earnings and a vast investment in reconstruction. When the US decided to print dollar to pay for the Vietnam war instead of increase the taxes inflation became unbearable.
The next chapter starts with the oil companies engineering of the oil crisis (still blamed on THE ARABS!!) and the stealing of money from ordinary peoples earnings into vast funds for the same companies. Inflation reduced and the Neo Liberal idea of continued transfer of funds from ordinary people to the ultra rich has continued to suppress inflation.
- Sergio Paradiz Jul 16, 2019
  
  Inflation has been tamed not by mastering monetary policy but by the outcome of a two new economic realities ie globalization and financialization. The outcome is a decrease in wages and production costs and the transfer of significantly increased profits to the very few on top. Those few with newly boosted wealth had no stimulus to reinvest and sought after higher returns in speculative financial instruments. Effectively what we have seen is diminishing real purchasing power of blue and white color workers while wealth on the top kept shooting up. Central Banks have since been facing an unexpected challenge ie low or no real inflation is now the norm. And none of the conventional armory is fitted to deal with it.
  - Gunnar Eriksson Jul 17, 2019
    
    Thank you for expanding, but the outcome of globalization or financialization depends on the present paradigm (money is the end in itself and money should have control of political agendas. A tool does not result in a given result; the result depends on how you use it.
    - Sergio Paradiz Jul 17, 2019
      
      The outcome of any reform or revolution depends on the tools used but ultimately - trust me - depends on how committed people carrying it are. As the Marxist slogan goes - workers of the world, unite - aka build a movement either right or left wing populism and you can beat main stream politics. The other way round it’s also true. Those who have the power change the world. This ain’t propaganda. These are facts.
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Thaomas H Jul 9, 2019

Monetary policy since 2008 has been anything but a success. Not only did the Fed allow employment to remain below the full employment level until 2019 (if it has been attained even now) it did not even maintain the price level on its average 2% p.a. target. Indeed, markets do not yet seem to believe that it HAS a 2% p.a. target (can one reject the null hypothesis of a 2% ceiling?) or at least do not believe that it is willing to "do what it takes" -- lower short term rates anc or engaged in sufficient QE -- to get average inflation up to the 2% "target."
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Karen Williams Jul 8, 2019

After very extensive reading, I have come to the tentative conclusion that it's ultimately down to good old-fashioned supply and demand. Wealth and income inequality have led to a situation where inflation in the price of the kinds of assets currently sought-after by the wealthy is actually high, but at the same time inflation in the price of goods and services typically consumed by middle- and low-income people is low.
- Rustu Yucel Jul 8, 2019
  
  As you pointed rightly wealthy toys are getting more and more expensive while average income earners goods and services prices are not increasing as their. Average earners stuff are using for calculation on CPI so money is not flowing to them to increase their stuff's demand hence CPI not looming. But on wealthy side constant flow of money is more than the toys they are looking for. So prices of luxury, one-off cars etc..prices getting higher and higher.
  - Karen Williams Jul 8, 2019
    
    It's not just luxury goods, either. It's also the stock market, investment real estate, luxury goods like art and wine purchased solely in hopes of price appreciation, and so on. Anything that rich people think will help their money grow or at least preserve its value.
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ALAN MANAS Jul 7, 2019

Inflation over the last 10 years has been heavily influenced by the rise of Chinese economic power. China has a powerful Finance Ministry. The Chinese Finance Ministry has a 10 year plan. That plan has growth goals for every major sector of the economy. The Finance Ministry understands that shortages of inputs, whether in personnel or materials many years forward, would make it impossible to engage in constant expansion.

They apply the same strategy that you can easily see in their building of new cities, airports and energy production to every sector. Obviously they miss things. But, when they do they engage in a rapid expansion of inputs. Especially in the commodity sector they realize that huge fluctuations in prices is not good from their perspective. They have engaged in a constant policy of counter cyclical behavior in major commodities.

How do they do this? They totally control the banking system. We know from the histories written on Singapore and Japan that the Finance Ministry officials arrange the financing who what their priorities are. This is why China wants to maintain their system of banking domination of the financial system and control capital flows.

This behavior has muted the fluctuations in the global factors that contribute to inflation.
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George Seper Jul 7, 2019

Low wages, inflated real estate prices and real cost of living increases all contribute to reduced consumer confidence and spending. It seems to me that economists, by thinking that controlling a complex globally interconnected economy can be achieved by tweaking a few monetary policy levers, hubristically take a far too simplistic view.
In the 1980's when inflation really gathered pace, the Vietnam War was receding in memory as was the mid 1970's recession, the Cold War was warming, the computer age was on the doorstep and there was a feeling of unlimited possibilities for all. Popular culture in the form of film, music and literature informed the public that the sky was the limit. The air was filled optimism...
Today, popular culture and the media typically fills the public with dread in the form of dystopian futures, alternatively caused by aliens, a dying planet, revolution, bio hazard, IT robots run amok, zombie apocalypse etc.etc..
It is also more than likely that the taxpayer funded bail-out of financial institutions during the GFC, which had the effect of transferring wealth from the low and middle classes to the rich, in effect initiating a Dickensian level of inequality, has left the masses feeling betrayed by both economists and government. Who can blame the public for conspiracy theories, rampant mistrust, and for keeping what little money they have tucked under the bed? The corporations favourite scam of "Trickle Down Economics" was a great lie and only further succeeded in enriching the already rich.
If workers and taxpayers continue to be sacrificed as canon fodder to protect and defend corporate profits, there will simply be no one but the wealthy few to buy products and services.
This picture of a society divided is one we have historically seen many times before and it never ends pretty...
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Barry Rosenfeld Jul 7, 2019

Prof. Barro writes as though the realities of hyper-globalization are not real. When Volker was dealing with inflation - caused by supply shocks, not demand shocks - the international capital markets were not as they are today, and the supply of savings throughout the world was not as easily mobilized to react to changes in interest rates set in conformity to central bank policy targets.

The current world trading regime, moreover, almost ensures that domestic inflation in major trading countries can be offset by quick responses in trade flows, not only for final goods but also for intermediate products entering global supply chains. As well, many contracts call for long-term price constancy, regardless of overall domestic price pressures.

Economics needs more economists who are "foxes" and fewer that are "hedgehogs."
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Andrew Percy Jul 7, 2019

Inflation is either caused by a rise in costs or a discount on future value, and it is the latter that it seems we are talking about here. If the reliability of future value is weakened then people discount that value in the present.
Since 1979 costs have been contained by technology and the future value made durable by commitment to that durability from central banks.
Costs remain contained and future values anchored so long as climate and infrastructure externalities are excised. Once those externalities become unavoidable the future value of trillions in financial assets will become unreliable, and then central banks will be unable to sustain the durability of value (prevent inflation).
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Daniel Brockman Jul 7, 2019

I think Dr. Barro is correct that we can't see very far down the road, that even the most knowledgeable of us haven't yet discovered the eternal truths of interest rates, inflation, money, and incomes, and that what we today think is true may fade away rapidly, and that we have entrusted our choices to those who seem to understand best. As a society, we are making this up as we go. But of what human endeavor is this not so? Let us not be too anxious about how much we could lose, for it's overbalanced by how much we could gain.
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Jonathan Taplin Jul 7, 2019

The digital economy is deflationary. Full stop. Your computer next year will be cheaper and faster. You have access to hours of free entertainment and news on social media. If AirBnB brings 3000 new rooms a month on the market, why would Marriott be building a lot of new hotels. If Uber is an acceptable substitute for owning a car, how can we maintain new auto sales at 17 million units per year?
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Elliott Morss Jul 7, 2019

Barro needs to take off his blinders and look beyond government policies for the answer. Entrepreneurs continue face the choice of whether to hire new workers or invest in labor-saving automation. They are increasingly choosing the latter. This means the demand for labor falls and consequently its price/wage. Workers find jobs but they don't pay as much. This means there is less buying power. In short, the growth in labor saving investments is why we have little inflation.
- Daniel Brockman Jul 7, 2019
  
  The labor theory of inflation tells only part of the story. If potential employers deploy more capital to purchase of labor-saving equipment, then they will pay less for labor, unless the money supply increases by an offsetting amount, in which case there will be inflation. If the central bank maintains monetary stability, then changes in the price of labor, and the money spent on labor-saving machines, won't have more than transitory effect on inflation, IMHO.
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Douglas Leyendecker Jul 7, 2019

The likely culprit here is our transition from a production to a service based economy.
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Jerry hough Jul 7, 2019

At the end of the 1970s, it was said that inflation was produced by wage inflation. Computerization led to outsourcing and the 1965 immigration law to grossly excess immigration--and stagnent wages. Near zero under Obama. The market is up 35 times since 1982.

When Trump took measures to push wages up, Wall Street Journal articles said rising interest rates are necessary and the Fed signed on. But Trump is dedicated to wages because of his working class base and forced the Fed to reverse course. It will be interesting to see what happens with inflation if wages continue to rise.
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Paul Daley Jul 7, 2019

I admire Barro's modesty. He's absolutely right about explanations based on expectations. They tell you nothing more than what you want to hear.

I would guess that we're just dealing with new forms of price suppression. The United States and other developed countries have simply been filling their deficits on current account by supporting sales of financial claims through QE programs, ultra-low interest rates and other guarantees of asset prices. If they stop, or asset prices hit a natural ceiling (dictated by negative returns), then sales will flag and so will currencies like the dollar, the pound, the Euro and the yen. The result will be all the inflation anyone can stand, and more.

ultra-low interest rates. If US sales of financial claims flag, so will the US dollar. It's a case w
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Waleed Addas Jul 7, 2019

Inflation is a persistent rise in the price level. As such, the dynamics of inflation on consumption and also on savings cannot be overlooked. This is because inflation affects the amount left for savings by households while interest rate rises also affects the savings rate as well. As such, these important variables need to be examined all together including Fiscal policy and not only Monetary policy. The main objective should be output and employment and not only inflation- targeting !
- Daniel Brockman Jul 7, 2019
  
  Distribution of income is equally important as quantity of output, and more important than employment, imho.
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Jarkko Kotola Jul 7, 2019

Maybe this has something to do with the disappearing middle classes? Not enough demand to drive inflation.
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bernd harzog Jul 6, 2019

Here are a couple of factors that could explain the low inflation.

1. The Fed has not blown out the money supply. When it pursued QE it turned around and paid banks to hold reserves. This prevented all of the excess money created by QE from entering the system and creating inflation.

2. The Phillips Curve is nonsense. The supply curve of the US economy is flat. There are still plenty of workers on the sidelines and automation (AI and robots) are letting business scale while adding fewer workers. Therefore growth in the economy has not caused inflation and is unlikely to.

3. The price/performance of microprocessors continues to double every 24 months (Moore's Law) and microprocessors and the associated software are finding their way into just about every product and service (Digital Transformation). So the powerful dynamics that have driven the computer industry are starting to drive the entire economy.

I believe that the Fed should cut short terms rates enough to create a normal yield curve for the simple reason that there is no risk of inflation in doing so.
- Barry Rosenfeld Jul 7, 2019
  
  The Phillips Curve is based largely on historical data that predate the post-2000 wave of hyper-globalization. The inverse correlation between unemployment and inflation (BYW, which is cause and which is effect) was largely for an economy with a relatively small foreign sector. That no longer holds. But ask economist to look at overall context - good luck.
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- Daniel Brockman Jul 7, 2019
  
  3 good insights
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B Wilds Jul 5, 2019

I continue to contend the primary reason that inflation has not raised its ugly head or become a major economic issue is because we are pouring such a large percentage of wealth into intangible products or goods. This includes currencies. If faith drops in these intangible "promises" which is the base of our financial system and money would suddenly flow into tangible goods seeking a safe haven inflation would soar.

The ECB and other central banks often claim deflation drives or allows their QE policy to remain and is central to their ability to stimulate. The moment inflation begins to take root or becomes apparent much of their flexibility in policy is lost. The 2% inflation target central banks have deemed optimum is not valid.

In the past I have put forth the idea that inflation could rule the day even if central banks are unable to keep the wheels on the bus and the economy collapses. This powerful force also known as stagflation can devastate those improperly invested. The article below explores the basis of this theory.

http://brucewilds.blogspot.com/2016/03/inflation-or-deflation-debate-continues.html
- Nicolas Pujol Jul 6, 2019
  
  Some pockets of the economy started going up in prices e.g. healthcare, college tuition, at a faster pace. I wonder how much these sectors weigh on the overall CPI index.
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Mauricio Duran-Loriga Jul 5, 2019

Amazing how people from all walks of life, from teamsters to Nobel laureates end up with the same dull talk, that the Fed is responsible for high/low inflation. I'm -flabbergasted!

There are two main ways to create inflation. The first one can be induced through monetary policy. The second one may come from higher wages.

If a CB wanted to create real inflation, it would have to create massive reserves and the Treasury would force them into the monetary flow in a way that the new reserves madly speed up monetary velocity. Weimar November 1923, France 1794, Zimbabwe 2008 and others. In essence, that amounts to monetize the fiscal deficits and then still keep "printing" several orders of magnitude beyond that point. That can be done in a matter of days, if not hours. The inevitable collateral damage is the free fall of the currency when compared to its peers.

But there is a catch. If only one of the big CB is doing it, it will succeed. However, if all major CB do the trick at the same time, that offsets the monetary effect of increased reserves and it ends up as a zero sum game. Weimar, France and Zimbabwe were for instance alone at that time in printing... and it worked, swiftly killing their currencies as a result. Over the last decade, we have witnessed not so massive printing of US$, Yen, Yuan, Euro, Pound, CHF. But they were altogether at the same time. Didn't do the job...

Think the days after Executive Order 6102 in April 1933. Gold was revalued from 20 bucks/oz to 35. Creating outlandish "reserves", by only one country at the time. It immediately induced a +30% inflation!

The limited group of major currencies act as a competing oligopoly in classic economic theory. When one of the actors lowers the price (value of currency) of a product, the others immediately follow suit. So I do not see a single chance of achieving monetary inflation by increasing reserves at the major CBs cartel.

Wage inflation is different. It is based on the supply/demand of labor, at a given price. The more the supply of labor is limited, the more wage inflation gets structurally embedded in the price of goods.

On a globalized economy like today's, labor supply and demand is a global market. Bear in mind that never in the history of mankind have so many low income workers joined the labor market at once, with no offsetting at the retirees age tranche.

1980-2015 has seen the Eastern European countries and China join the global supply labor from low income workers. That is a one in a millennium (or even more) event. Deflationary event. Still today, the 2,5 billion people that glut the global labor market are generating deflation, they are still competing at the lower bound of income. And here comes India, who is about to join the global labor arbitrage party in earnest. Make sure you can keep mental track of the deflationary wave that this is going to cause on a worldwide basis.

How to reverse course of the labor supply tsunami? Besides conspiracy theories like epidemics and that kinda crap, the only way is to end up the global trade as we know it, killing most foreign competition in full. Sounds even less possible than creating monetary inflation!

This is why I believe the inflation talk is totally obsolete.

Mankind has destroyed wealth/money through inflation over millennium, with extremely rare and short periods of deflation. This mechanism is over. But as higher prices gave the false impression of "getting wealthier" (at least on a nominal basis), the world did not fell into outright worry, and so, savings were invested looking for (inflated) yields.

2000-2010 marked the transition period from inflation to deflation, pretty much like 1920-1930 marked the transition with the gold exchange standard.

We are already into a very long period were wealth/money will be destroyed through sustained deflation. It would be too long to explain that here. But bear in mind that the structure upon which deflation will cover the planet comes from rampant wage deflation. That is unavoidable. Back in the 1980's, the West thought China labor costs were unbeatable. As of today, India labor costs are a fraction of China's. And India is overcoming China as the mos populated country right in 2024...

In deflation, the chase for yield becomes an utopy. So people worry that by today next year, they will have less money (in monetary terms). So investment and consumption enters a long bear hybernation, and the prophecy self-fulfills smoothly.

Wage deflation is like doing the military service, a great equalizer, but at the lowest possible bound. The fact that 1,4 billion Indians gain access to potable water and daily food and some very basic health coverage means the Western population will be deprived of every luxury it enjoys today. And the West is absolutely unprepared to go down that track. (Read that back again).

One last word about the Fed (or other major CB). They are never ahead of any curve.
Never been. Never will be. CB actions are enacted to get to where the curve already is at any given moment. Today th July 2019 the 10-Year Bund is yielding less (more into negative territory) than the ECB rate of deposit. So the ECB is about to lower rates in the coming weeks to meet where the Bund already is! Poor commercial banks...

Think twice. If that set of people had the alchemists powers (that so many people accord them), they would be quadrillionnaires, and no need to wake up early in the morning to extend and pretend magical powers in front of a superstitious dull crowd of numbskulls.
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Colin Haller Jul 4, 2019

Maybe because the inflation rate is tied more fundamentally to fiscal rather than monetary policy.
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Victor Morris Jul 4, 2019

As long as cheap labor and susidized markets compete with the US, And quasi socialist country's economies faulter keeping rates near zero, Inflation will remain low.
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Paul Friesen Jul 4, 2019

Interest rates affect the economy mostly by affecting the construction industry. But looking at U.S. housing starts data, it seems pretty subdued compared to past peaks - about half the rate in 2008 for example. Could it be that other things are pulling construction activity down, countering the tendency for low interest rates to boost them? Trump's anti-immigration policies could be part of it, plus low birth rates and the difficulty that young people have getting a job that will support a house purchase.
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