Via Albert Pinto, here is a chart of inflation from the Financial Times:
I don't know why anyone would care that these two lines are similar,¹ nor do I know why you'd get ordinary inflation figures from Jesper Rangvid of the Federal Reserve. But the bigger problem is that this chart uses year-over-year inflation, which makes little sense when you're doing a comparison over two time periods. Let's see what it looks like if you use monthly inflation:
Nothing much to see. I added a 9-month moving average to smooth out the noisy monthly data, but when you do that all you get is two lines that are roughly flat and then go up. I daresay every bout of inflation in history fits that pattern.
It's weird how determined people are to compare all inflationary episodes to the 1970s. This is especially egregious for our current round of inflation, which is so obviously completely different. I imagine we're going to have to put up with this nonsense until the entire generation of people who remember the '70s have died off.
¹And they aren't even all that similar, actually. During the first five years the blue line is mostly flat while the red line is a hump. Over the next two years both lines go up, but only because they've been manually aligned by the author. The only real bit of information you get from this chart is that both periods of inflation lasted about the same length of time.
The US political economy is socially stuck in the 1960s, and economically stuck in the 70s.
It will be this way until roughly everyone currently over 60 is dead.
Yeah, exactly this - except I think at this point it might be everybody over 70 (it's been that long). It's not weird at all when you remember that the attitudes of most of the power-exercising generations were calcified in the 70s when they came of age. One of gerontocracy's gifts.
Yep, absolutely right.
Anytime you go from a situation from where there's hardly an inflation to a sudden burst - well they call that a shock and like all shocks to the system, there is pain.
Quibble - the first two years of the first five on the blue line is definitely up
Unless there was some stretching or compression applied to one or the other of the lines, I fail to see how their being lined-up the way they are is any different than when blood-lead level lines are manually aligned with (violent) crime rate lines.
Drum is engaging in casting ad hoc aspersion as he has been unable to let go of his fallacious "team temporary" and unlike say Krugman, unable and unwilling to admit any error (as indeed his year long ad hoc trend line fitting on inflation that was wrong, until moderation came).
The similarity in the pattern of acceleration and decelaration is in fact as you note, quite good and the Wolf article drawing upon the analytical reflections of a respected Danish economist (https://www.cbs.dk/en/research/departments-and-centres/department-of-finance/staff/jrfi#:~:text=Jesper%20Rangvid%20is%20a%20Professor,household%20finance%2C%20and%20mutual%20funds.) with respect to drivers and factors in current inflation that from econometric views echo.
Thus of course Drum's misplaced snideness about why one would reference... rather evidently it is not the Right only who develop a dislike of Experts and decide to draw on their own non-expert views when experts are in contradiction of politically motivated reasoning.
As inter-macroeconomist discussion this of course was not directed to an audience that will lens their understanding through the party political reaction - however understandable in some respect given the US Republican party years - decades even - long crying wolf over inflation in most dishonest fashion.
Ouch, ‘lens’ as a verb?
Kevin’s beliefs about this inflation episode may or may not be ‘fallacious’ or in error, but as we cannot run the counterfactual, we cannot know whether inflation would have subsided without Fed action, or not. Nor can we ever know.
One thing we can know with reasonable certainty is that Fed action is not a necessary condition for ending inflation. Post-WWII inflation in the US peaked at 20%, and ended in about two years, during which time interest rates on Treasury bills rose from three-eighths of one percent, to one percent. Even that modest rise was likely too late to have had an impact.
As to your appeal to authority, I will cite Carl Sagan: “Authorities must prove their contentions like everybody else.”
The "appeal to authority" in referencing Wolf's background is no such thing - although it is interesting the Lefties so ready to make snide comments about the populist Right's anti-expertise and intellectualism revert to misunderstood referencing of the
Wolf's actual article - not Drum's misrepresentation of the graph ripped out of article for usual superficial Twitter idiocies by the Twitterati (this not being Drum's sin, other than the reliance on the superficiality click-bait propagating Twitter) - as a brief article sketches the analytical factors for having concern for 1970 type scenarios (as the graph reminds the era was not one smooth cycle) of rebound of inflation following a cooling based on a broad excess liquidity in money among other shock factors is amply supported if one reads proper economics - the "contention" being the identification of a risk factor and set, not as the simplistic party political knee jerkers have it, a prediction of what must happen.
As for Central Bank action as a "necessary condition" for ending inflation - that is... a red herring - although the ample examples of inflationary cycles where there is not intervention, cycles that can indeed end themselves but after significant and profound economic damage. That there is broad macro-econometric historical data for.
Rather like the case for emergency stimulus (fiscal or monetary in economic crisis as like Covid), the argument (the irony being that the Party Political motivated reasoning flips around) that intervention is more prudent than not is the cost is lesser from a modest interest rate driven recession than the economic damage of inflationary cycles.
And just as the stimulus call was the correct and prudent one - and the Right was utterly wrong in opposing - the corrective afterwards for the overshoot - which was well worth the price so long as it is corrected, is the right one as most prudent.
Regrettably simplistic and superficial Party Political "My Side" motivated reasoning intervenes.
Excellent point, and it can't be stated often enough! Counterfactuals are fictional what-ifs, the stuff of alt.history bulletin boards. Not the stuff of serious analysis.
The difference with lead/crime alignment is that the lag in that case represents a real, fixed time between exposure and onset of criminal behavior, while with inflation it's a completely free parameter.
This chart though isn’t trying to show cause and effect, but everything old is new again. Will the remaining 9 years play-out “the same” as Thor counterparts from before? That remains to be seen.
So the US is going off the gold standard again? Uh-huh. You don't say.
"This chart though isn’t trying to show cause and effect,"
Which is exactly the point. Absent a plausible and useful underlying causal factor, the chart just shows two things that look alike, which isn't particularly interesting.
And there are plenty of reasons to think that inflation triggered by oil shocks in the 1970s isn't predictive of what might be happening now.
https://www.imf.org/wp-content/uploads/2022/05/oil-intensity-chart-cotw.jpg
Always appreciate your well-considered, sober arguments. But ‘counterparts’ begs the question, no?
The point (that I’m taking from the chart) seems to be “This inflation curve of the last few years looks like that of the first years of this past period. Perhaps we are in for a repeat.” Of the outcome if not the cause(s).
But that point is identical to saying: "This inflation curve of the last few years doesn't look like that of the first years of this past period. Perhaps we are not in for a repeat." The data have nothing to do with the conjecture, unless you are ascribing some ineffable causal mechanism to coincidences and/or indulging in pareidolia (neither of which are particularly convincing).
"the first two years of the first five on the blue line is definitely up"
Yes, from 0% to 2%. And then it goes back to 0% again.
Martin Wolf being a respected and experienced macro-economist, versus Drum who has been doing ad-hoc "fitting" of predictions that for a running year were wrong, telling Wolf he's wrong on how to analyse in his own field.
There's something rather sad about that. Somethng very skewed polls.
lol, the irony here is funny. classic internet comment humor.
More appeal to authority. See Carl Sagan quote.
More empty quote posturing over political reaction to inconvenient expertise
OK, I’ll be blunt - I don’t think there is such a thing as expertise in forecasting economic outcomes. Show me a predictive model that performs substantially better than chance, out-of-sample, and you can change my mind.
Even blunter, I am skeptical that we will ever have such a model, because the underlying structure of the economy is not static. Just to mention some few things, unions have declined in the US, weakening their bargaining position for wages; there is much more concentration in sectors such as retail; manufacturing is a smaller fraction of the economy, while services are a larger one. Models that might have worked in the 1950’s are unlikely to work now.
You can be blunt as you like: however you are attacking a bloody straw man.
Wolf is not "forecasting" in the actual proper article and his other commentary on the inflation issue - he is identifying risk and issues that need to be watched as well as econometric challenges as in the change in metric utility
Drum's misrepresentation of the discussion is Twitterati superficiality and misunderstanding of someone who has at best a superfical comprehension of the economics.
The idiotic "appeal to authority" nonesense responses show that the Lefties rather (1) have no proper grasp of the actual meaning of the logical fallacy, (2) are fundamentally posturing hypocrites when they are attacking the populist Right on anti-intellectual anti-expertise, as of course the moment proper expertise runs against the Team's desired path...
Motivated reasoning depending on My Team versus the Other Guy level of reaction.
Something tells me you have no idea how posts like this reveal just how little you know about the subject - any subject. Would it kill you to at least take an online course in econ101/102? And cheese & crackers, would you learn something about standard methodology? That last is the real tell.
in terms of the actual article, an opinion piece by FT's long-standing macro-economics editor and commentator, Martin Wolf, https://www.ft.com/content/146647c0-8e0d-4497-8ea8-ea5f930d7fcd - rather than drawing on Twitter, the article provides the actual analytics of an analysis rather more grounded than Drum's ad hoc charting.
The annualised rate (not annual) is provided of course for smoothing noise and the point being made in the Wolf is to draw attention to the broad 1970s pattern of a modest cooling and in conjunction with notably factors as substantial monetary overhang and stickier aspects of value chain inflation there is a substantial risk of indeed re-running the re-acceleration pattern seen in the 1970s.
It is not saying in foolishly and rather dishonest presentation of Drum the 1970s return - rendering as if it is one of your tedious party political arguments from the Republicans.
This of course is what happens when one starts to view all things via party political blinders and engage in Motivated Reasoning.
I remember the 70s well, but in terms of inflation there was nothing memorable other than the energy crisis, lines at gas stations, and the slow change from giant gas guzzlers to small cars. Today's inflation too will pass and in 40 years will be just a blip on someone's chart.
Now that I think of it, my mom, who didn't spend much and liked to save, was bummed when those 20% CD rates went away with inflation.
There is a 2nd piece of information. The recent inflation was smaller than the smaller 1970s inflation peak.
I notice that, too. +1. Significantly smaller.
The similarity between inflation in the mid 70s (then), and early 20s (now) is that ramping up interest rates in both cases wasn't the appropriate solution. In the 70s the cause of inflation was the oil crisis, and greedy corporations. Now it's pandemic-related supply chain disruptions and greedy corporations. Different in specific ways but categorically similar enough. The other similarity that's striking is that in both cases, there were Democratic presidents that greedy corporations were desperate to derail before the next election. In 1980 they succeeded and we got Reagan, the second in what's grown to be a long line of disastrous Republican presidencies. Unknown as yet is what 2024 will bring, but the same Fed forces that killed Carter are gunning for Biden.
Economic history is important; the proximate cause of the 70's inflation spike was the slow-rolling collapse of the Bretton Woods System. Yeah, I know - Wikipedia. But at least it's a starting point to more accurate/detailed sources.
A common yardstick for want of a better term is generational memory-it's 75 years. So we have 25 years to go more or less. Makes me tired just thinking about it.
If Martin Wolf actually had a working thesis that could be backed up, one would think that he would have used his M2 money supply charts that also compared 2015-current in parallel to 1967-1984 period.
I think he knew that he could not supply readers with a clear case on his M2 supply thesis, therefore, he did not provide the charts.
Why do I think this? Because I looked at M2 supply, real M2 supply, and more critically, velocity.
Ain't nothin there.
A strange and superficial strawman the comparator is not relevant to the monetary supply argument (of which Wolf's FT article the "working thesis" is presented, but not the strawman you decided to knock down).
Please go away. Just ... go away.
Apparently the conclusion we're supposed to draw from two lines representing one variable measured half a century apart is that the concurrent downturn in inflation is unavoidably going to lead to an even worse inflationary period two or three years from now. This is not even tea-leaf reading. At least with tea-leaf reading the charlatan doesn't get to choose the tea leaves in advance.
Maybe he's predicting another pandemic in 2027 just like the second oil crisis of 1979? Or he's just guessing.
Apparently it is rather more easy to engage in political knee jerking than actually read an article as in fact no such thing is found in Wolf's article at all.
Well, if you want to post the article to get past the paywall, be my guest.
Lounsbury, you just wrote a few comments ago, “the point being made in the Wolf is to draw attention to the broad 1970s pattern of a modest cooling and in conjunction with notably factors as substantial monetary overhang and stickier aspects of value chain inflation there is a substantial risk of indeed re-running the re-acceleration pattern seen in the 1970s.”
Is that it, or “no such thing”?
I wrote what I wrote, yes... what that has to do here
The comment to which I replied: "unavoidably going to lead to an even worse inflationary period two or three years from now"
As you entire lot appear to be too lazy or dim to read Wolf's actual article - a brief daily opinion piece in Financial Times which of course is summary rather than full economic review - there is no "prediction" of unavaoidability nor even prediction at all.
There is the identification of econometric factors and attention to historical econometric record that highlight a risk of a similar rebounding - one I will note that for us in this business has been IDed for some time now (thus my months of comment on Drum in this very vein).
ID of a Risk Factor and Potential is not a bloody prediction.
Not any more than my say advising you that if you Drive in Fashion X you have an elevated risk of hitting a pedestrian or having some other accident. You certainly have the elevated statistical risk, but while I understand you lot struggle with statistical thinking, elevated statistical risk does not mean It Will Happen. Risk Identification is not bloody prediction.
Just like one can continue smoking and never get lung cancer. But any individual continuing smoking and not getting lung cancer is irrelevant to the risk analysis itself.
Fine, I'll stipulate that you are correct that Wolf is not making a prediction, but rather identifying factors suggestive of a risk of a second peak of inflation. (That is, presumably, a risk elevated over some baseline risk that an inflationary episode occurs at any random time).
The difficulty I have with this is: 1) We have a great deal of data relating, say, smoking and lung cancer, or drinking and driving. The oldest systematic measures of economic variables span little more than a century; many have much shorter histories; and over that time only a handful of inflationary periods have occurred. That is a very small N for statistical analysis. 2) Economic phenomena like recessions, inflation, expansions, etc. take place over periods of time that are long relative to the time periods over which economic systems change in very substantial ways. By contrast, lung cancer cases run their course in at most decades, while human evolution happens over hundreds of millenia. It seems to me that macroeconomic data will always be far too sparse to allow prediction at much better than chance, unless we somehow achieve an economic system that is static over centuries. Though I suspect a system that rigid would not be one we would want.
I suspect the conclusion we're supposed to draw is that fresh beatings must applied until morale improves.
+1!
Are the Learned™ truly trying to find an epochal pattern in human economics? A "law"? In order to predict the future? Have the Learned™ read too much Asimov? Or have the Learned™ stumbled upon a curious coincidence?
Just asking questions. Maybe AI could ponder this, something that didn't exist in the '70's except in science-fiction. Along with computing power and oil flows some orders greater than last century, along with a certain lifeform. I guess the authors at FT are asking questions too.
Well, there is a pattern at work here, a recurrent theme if you will, but not the one being promoted up front: To whit, an appeal to authority (in this case, pseudo-expertise that is touted as 'scientific') to justify cutting taxes on the wealthy, further weakening/removal of government protections for the common folk in order that private interests might more effectively prey upon them, yada yada (or is it yadda yadda? Appeals to the google are not dispositive.) IOW, the same ol' same 'ol stale con that's been run since before history was being properly recorded; oddly enough and in my own lived experience, one that the public still falls for more often than not. The good news -- and it is very good news indeed -- is that the historically recent practice of public education seems to have significantly depressed the success rate, with better education among a more widespread populace taking corresponding larger bites out of those numbers.
Yep, absolutely right.
Anytime you go from a situation from where there's hardly an inflation to a sudden burst - well they call that a shock and like all shocks to the system, there is pain.
Also too as was pointed out, imagine having to wait in line for gas when you never had to do that before. Not only is it more expensive, but you have to wait for it too. You can imagine how pissed off people would get. I would argue Jimmy Carter was actually in a good spot for re-election in early 1979 (I think higher poll numbers were higher then than Biden's now). Then BOOM! gas crisis. People waiting in lines. Riots breaking out. All sorts of freaky stuff happening. President announces an address on gas prices then cancels it, disappears for weeks then comes his "malaise speech" which, actually was well received at first until the diasterous decision to fire the whole cabinet and poll numbers crater and Ted Kennedy and Jerry Brown announce primary challenges.
Granted COVID-19 has been a disrupting event in the same manner as the oil shocks (cause by the Yom Kippur War and the Iranian Revolution) but luckily a lot people in government and finance kept their heads and realized what was worse was deflation and mass unemployment rather than inflation caused by supply chain shocks, a major European war and pent-up demand that would eventually work themselves out and see the rate decline. The reality the Fed's target rate of two percent is too low. It needs to be at four percent for an economy where real wages can wise and benefit workers.
For all the obsession with 1970s inflation, people are still acting like 7% interest rates on mortgages are the highest in all of human history.
Indeed there is vast over-reaction to a return to interest rates that in the long historical context are actually quite normal.
And I would opine rather healthier overall to move away from the post 2008 financial crisis of zero bound interest rate, as that extraordinary regime continued is not really broadly beneficial - benefits flowing rather more to speculators like Hedge Funds who can leverage up, the Left reaction to this change really is misplaced.
I'm no expert on this, but has Larry Summers commented on the apparent failure of his prediction that inflation could not come down without a huge run-up in unemployment?
Hahahaha!
As long as you don't admit you're wrong ... you're still an expert. Right up there with George telling Jerry that, if you believe it ... it's not a lie.
The talk about waiting-out generational memory evokes recollection of the time between Glass-Steagall and its unwinding.
Now there's a deep historical truth for you! I'd upvote you +10 in the comment system would allow it.
People in their very late 40's were deeply scarred. I was in high school at the time but I remember how hard it was for my dad's small business to go from the aftermath of guns and butter straight into Volcker's recessions. It wasn't the Great Depression, but it a similar long lasting overhang in people who wanted to insure it never happened again.
More importantly, a long lasting overhang for the people who really mattered and who wanted to insure it never happened again. Thus Reagan, the gutting of the Fairness Doctrine, the rise of FOX/Sinclair, the war on unions, education, and other enemies of the state that they might never again have a say in the making of public policy, etc.