America's date with deflation
By Bradford DeLong
Financial Times, August 20 2002 19:51
Two years ago, at the peak of the late-1990s boom, the US economy was slightly overheated. As the unemployment rate fell to 4 per cent and below, inflation began to creep upwards, rising by between a quarter and half a percentage point each year. By late 2000 it was clear that America's gross domestic product was 1-2 percentage points above potential output - above that level at which aggregate demand balanced aggregate supply, at least in the sense that there was neither upward nor downward pressure on inflation.
Today things are very different. America's level of real GDP is running 2 percentage points higher than it was in the summer of 2000. However, underneath is the extremely strong underlying productivity growth trend driven by technological revolutions in data processing and data communications. These technological revolutions have boosted potential output by perhaps 7 per cent over the past two years.
Thus today America's real GDP is not 1-2 per cent above but 3-4 per cent below potential output. How do we know this? Simply look at the unemployment rate: today America is producing 2 per cent more than it did two years ago, and is doing so with an unemployment rate not of 4 per cent but of 6 per cent.
Moreover, the unemployment rate is more likely to rise than to fall in the next year and a half.
... With production substantially below potential output, there is downward pressure on US inflation. We have already seen US inflation drop nearly in half over the past two years. This downward pressure is not expected to lessen for at least the next year and a half. That means that by the summer of 2004 the US will have an inflation rate - at least as measured by the GDP deflator - that is less than zero. The US will, if these forecasts come true, have joined Japan in deflation.
Bo Lundgren, fd
bankminister i Bildt-regeringen -
Klas Eklund, fd
Trotskyist respektive Mats Johansson, gammal
kämpe
om Den Nya Ekonomin i USA
Att jag förföljder dem, eller rättare sagt deras verklighetsbeskrivningar, sker inte bara i folkupplysningens ädla syfte tjänst utan sker även i det vällovliga syftet att undergräva deras trovärdighet när de påstår att Sverige bör ansluta sig till EMU.
Det är ju, som Mats Johansson så riktigt påpekade: " Det är aldrig bättre att ha haft fel än att ha haft rätt. (SvD 2000-08-17)
Lär
gärna mer om NAIRU
NAIRU (The non-accelerating inflation rate of
unemployment),
det vill säga den arbetslöshetsnivå som
är förenlig med en stabil inflationsnivå.
Ha en bra dag!