Monday, August 6, 2012

On a log scale...

The quantity of base money and the CPI run fairly parallel from WWII to 1982, then veer apart.

Graph #1: Prices and Base Money
You could have just now landed from outer space, and you could still see that there was a significant change -- a significant policy change, probably -- around 1982.

As Staniford said, "it's hard to read changes in small growth rates on a log graph." Still, I think I see a gradual separation of the red and blue lines before 1982. In particular, the gap in the 1970s is twice as wide as in the 1950s!

And there is even more of a widening after 2007.

If you could pick up the blue line intact and move it until its little 1921 peak sat squarely atop the 1921 peak of the red line, you would see a similar -- gradual but accelerating -- separation of the lines from 1921 to 1945.


Now, base money and the rate of inflation:

Graph #2: Base Money and the Inflation Rate
There is pretty much a straight-line increase from 1970 to 1990 on the blue line, if not longer. And right in the middle of that invariant increase, inflation dropped away. It's almost like, before 1982 the blue line served as a "bottom" for the red line. And then after 1982, not.

This one is mostly just all visual effects and mathematical coincidences, I think.

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