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"Robert Samuelson, who writes for Newsweek and The Washington Post,
has for years been one of the most interesting economic commentators in the US"
Was inflation sown in moderation?
"The Great Inflation and Its Aftermath", By Robert Samuelson
Review by Clive Crook, Financial Times December 14 2008
He stands for independence and lack of agitation, real or synthetic. He has no time for exaggerated alarms and enthusiasms. He is steady in a boom and steady in a crisis. Except that he writes too well, he might have been a good central banker.
Many economists then believed it was possible to exploit a stable trade-off between inflation and unemployment. Accepting a slightly higher rate of inflation would allow a permanently lower rate of joblessness: a small price to pay, many believed.
In the view of most economists, all those ideas now stand discredited.
Accepting a higher rate of inflation does not yield a permanently lower rate of unemploymen
Once US inflation had risen above 10 per cent, it took Paul Volcker at the Federal Reserve, Ronald Reagan in the White House (prepared to give Mr Volcker political cover), and an unexpectedly severe recession in 1981-82 to bring it back down.
There followed more than two decades of the “Great Moderation”, as it is called: steady growth, low inflation, and muted business-cycle fluctuations.
Discussing this in 2004, Ben Bernanke, now the Fed chairman, called the “substantial decline in macroeconomic volatility” over the previous 20 years “a striking development”. Was it due to structural economic change, better monetary policy, or good luck, he asked? His answer: monetary policy, mainly.
Had the author known what was coming, this is not the book he would have published at the end of 2008.
The Great Moderation is over.
We are living new and unforeseen chapters, and the book does not have them.
The book does attempt some discussion of the crisis. With less than full conviction, it suggests that the Great Moderation fell victim to an internal contradiction:
low inflation fuelled reckless optimism which spilled over into speculative excess.
No doubt there is something to that, but the idea cuts awkwardly across the theme that Samuelson presumably first had in mind, and which is stamped through the book
– that a kind of social contract was struck after 1982, in which people accepted less fine-tuning of the economy in return for low inflation and steady growth.
Why have markets reached their exposed position? The answer is that success breeds excess.
This is the argument of a fascinating new paper from William White, economic adviser to the Bank for International Settlements.
Martin Wolf, Financial Times 24/5 2006
The Homeownership Obsession
As a society, we overinvest in real estate.
We build (and buy) too many extra-big homes and strive to make almost everyone into a buyer.
Robert J. Samuelson, July 26 2008
From the Newsweek magazine issue dated Aug 4 2008
Cheerleaders are believers. They see today's boom as a glorious reward for superior U.S. technology, management and faith in markets.
The grumps are skeptics. Without denying the economy's virtues, they think that it's got a bad case of what John Maynard Keynes called "animal spirits":
An overvalued stock market has powered an unsustainable consumer spending spree that will ultimately come to grief.
Robert J. Samuelson, Washington Post, July 22, 1999