My previous response was unsatisfactory.
I don't know what the economy will be doing in 6 months. We could be heading for higher inflation, or not. I am not discounting the possibility of higher inflation, and neither am I counting on a return to growth with minimal inflation.
I do not share your confidence in being able to predict the state change behavior of a complex system. The reason is simple, small changes in parameter values, and initial conditions, can have enormous effects upon the results. For the same reason, I distrust the rational actions taken by rational people, using rational models, in trying to manage the economy. Much of the inflation we see today is a result of loose monetary policy, as Greenspan poured money into the system even as he raised interests rates. Simply put, the market wanted rates higher and sooner. We can see this in hindsight.
So is the inflation we see today a result of Greenspan's actions, or a change in the state of the system? Does it matter? It has been shown that policies born from reason have caused both depressions and structural inflationary periods.
One thing we can be sure of, a rational thinking man will make a mistake in trying to control a complex system. That we can count on, and it has been proved for much of this century. To suppose that we, by exercising our reason can eliminate any remaining undesired features of our market system, and by still more intelligent reflection, and still more appropriate design and rational "coordination" of our undertakings create stable predictable growth, is the height of pretense to knowledge. This leads one to be favorably disposed to the central economic planning and control that lie at the heart of socialism.
Perhaps unfairly, but in sympathy with the preceding paragraph, I distrust any forecasting of economic conditions by what appear to be appeals to past market behavior, given "selected" parameter values or states. These types of forecasts are simply guesses, which, of course, are necessarily dependent on the state of mind of the guesser. |
