Tuesday October 19, 9:16 pm Eastern Time
US to enjoy low inflation, no deflation-economist
WOODSTOCK, Vt. (Reuters) Oct 19 - The United States is
poised to enjoy low inflation for some time without the dangers sometimes associated with falling prices, an economist said at a conference.
``Anyone forecasting the future from today has to be willing to give long odds that the low levels of inflation America has experienced since the early 1980s will continue,' Bradford DeLong, an economist at the University of California at Berkeley, said in a paper presented at a conference sponsored by several Federal Reserve banks and the Board of Governors.
Low inflation is a driving force for politicians because they sense the population's anxiety about rising prices and realize to come out ``against low inflation is electoral death.' And while it is difficult to prove a ``significant macro causal link running from low inflation to faster growth,' DeLong said.
Since when has any politician "come out against low inflation"?
``Economists' belief that low inflation is good for growth continues to rest on our common theoretical (axioms).
This is the demand management school talking. It's "a little inflation like a little drink, never hurt anyone". Is this coherent: "Economists' belief that low inflation is good for growth continues to rest on our common theoretical (axioms)" ?
On the other hand, he said fears that low inflation may spiral into deflation or even depression are often overdramatized.
How does inflation spiral into deflation? An inflation spiral is a monotonic increasing function with no second derivative(inflection). A phase transition is required to get to deflation. The transition is chaotic and discontinuous, but the imprecision of expression implies some sort of continuous transition. This has never been observed.
"A low level of trend inflation does make a downward spiral in the goods-and-services price index slightly more likely. But such risks are lower than one might think,' he said, noting ``starting a deflationary spiral in today's economic environment would be very difficult.'
Trend inflation increases the probability of a downward spiral in final prices? That's self-contradictory. Can you bail him out?
In fact, DeLong said there is probably more to fear from asset price "deflations" which are effectively unlinked to the trend of overall consumer or producer prices.
Now there's where he's right. The stock market can continue downward as consumer prices rise, but he doesn't mean it that way. I have no idea in what way he does mean it. Couldn't be real estate or bonds. Maybe he means commodities and gold?
This guy is from one of the presumably best schools in the world. Hope you are starting to see what a sham higher education is. Also, he was invited to give such breakthrough comments by another fraud: Fed board of governors. |
