Sunday, May 26, 2013

Illicit Krugman

The New Jerk Times stops in the middle of the 11th article to tell me I've "reached the limit of 10 free articles a month." But I'm reading Paul Krugman's The Mythical 70s and I want to read it all. So on the Firefox menu I hover over the Web Developer menu item until the submenu pops up, and then click on page source to see the HTML (or whatever you call it). I copy a good chunk and paste it into the blog editor. Presto, I've got the whole Krugman post.

And presto again, I've reduced it to focus your eyes on what I found in that post:
May 19, 2013, 8:46 am

The Mythical 70s

In elite mythology, the origins of the crisis of the 70s, like the supposed origins of our current crisis, lay in excess: too much debt, too much coddling of those slovenly proles via a strong welfare state. The suffering of 1979-82 was necessary payback.

None of that is remotely true.

What we did have was a wage-price spiral: workers demanding large wage increases (those were the days when workers actually could make demands) because they expected lots of inflation, firms raising prices because of rising costs, all exacerbated by big oil shocks. It was mainly a case of self-fulfilling expectations, and the problem was to break the cycle.

So why did we need a terrible recession? Not to pay for our past sins, but simply as a way to cool the action...

Was there a better way? Ideally, we should have been able to get all the relevant parties in a room and say, look, this inflation has to stop; you workers, reduce your wage demands, you businesses, cancel your price increases, and for our part, we agree to stop printing money so the whole thing is over. That way, you’d get price stability without the recession...

None of that is remotely true.

Well, some of it, maybe. Benefit of the doubt: Wages and prices were going up; you could call that a wage price spiral. And it was "exacerbated" by oil. And perhaps it became a case of self-fulfilling expectations.

And god knows, people suck the dick of expectations to this day because of it. But you see, it didn't start with expectations. It didn't start with the wage-price spiral. And it didn't start with oil. It started with rising financial costs.


jim said...

IMO the inflation of the 70's and 80's was due to the increased purchasing power of the rapid expansion of debt coupled with the demographics of baby boomers moving into adulthood. Even when debt expansion was slowed down by recession and high interest rates it was expanding at 10%. The trough in the middle of that credit bubble was as high as the peak of the recent credit bubble.

I noticed that TCMDO no longer means total credit market debt owed. It now means all credit market instruments.

Do you suppose they are trying to intimate that TCMDO only refers to debt that is an instrument that can be used as a medium of exchange and a store of value?
Private debts such as those between friends and family are not included.

The Arthurian said...

Demographics, sure. But policy, too. Policy could have provided more money (in proportion to population) while making sure debt did not grow out of proportion. Policy did not do this.

You know, I saw that "credit market instruments" thing and it didn't register. Thanks for pointing it out.

Maybe they think the word "instruments" is nicer than the word "debt". More musical, maybe??

FRED should say what their thinking is.