Re: Bush busts Social Security with massive deficits

From: Igor (jjweatherby_at_houston.rr.com)
Date: 10/03/04 

Date: Sun, 03 Oct 2004 19:28:41 GMT

William F Hummel wrote:

> On Sun, 03 Oct 2004 06:20:26 GMT, Igor <jjweatherby@houston.rr.com>
> wrote:
>
>
>>William F Hummel wrote:
>
>
>>>Exactly so. Significant inflation is uncommon during periods of
>>>rising debt.
>>
>>That does not mean debt does not cause inflation. If deficits increase
>>inflation and a recession decreases inflation then the effect will be
>>masked by recession. If the recession is pulling down inflation rates
>>faster than deficits are pushing them up then inflation rates fall. This
>>does not in any way mean that deficits did not cause the inflation rate
>>to be higher than it otherwise would have been. Without deficits
>>inflation rates would have been even lower.
>
>
> Macroeconomics is all about the total system, not some isolated
> portion of it. For that reason cause and effect are difficult to
> assign in macro. However it is foolish to apply ceteris paribus
> conditions and ignore the dominant feedback effects.
>
>
>>If you understand what a
>>Calculus I class is about you can understand the argument.
>
>
> I'm truly impressed that you learned calculus I. Unfortunately it
> hasn't helped much in your understanding of macro.
>
>
>>>Look at the 50-year history of
>>>rising government debt and the inflation rate which is no higher today
>>>than it was for most of that period.
>>
>>No it is not. Over the 1990's the inflation rate dropped significantly
>>to around 2%. Prior to the 1990's excluding the oil shocks the rate was
>>averaging around 4%. The 1990's saw inflation decrease significantly due
>>to tight monetary policy and the Clinton tax increase.
>
>
> Wrong. As I said, the inflation rate today is no higher than it was
> for most of the last 50 years as shown here. See for yourself.
>
> The annualized inflation rate since 1954 (50 years) based on the CPI-U
> was 3.98%.
> ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
>
> The average rate during 2003 was 2.27%.
> http://inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx
>

What can you really say this with a straight face? You show that the
annual inflation rate in 2003 is nearly half what it was since 1954. My
argument was this caused by Fed policy and reducing the debt due to
increased taxes. Yes the converse of crowding out is true. In the 1990's
the inflation rate dropped. In 2003, it was slightly higher than in
1999. Although the recession should have lowered the rate if the
increased debt did not have a positive effect on inflation. If the debt
did not help increase the inflation rate then inflation would have
dropped by 2003.

Yes Macro deals with a whole system but it you have to break the system
down into components to determine who the whole works. If you understand
calculus which is necessary to understand the models then you understand
how you break effects into components. For instance if we want to know
if a pool will fall or drain when you try to fill while the drain is
open, we need to know how fast the drain sucks water out and how fast
the hose will fill the pool. You can't figure it out otherwise. So how
do we see how fast the pool will fill? You add the gallons/per second
that the drain takes out of the pool (negative number) to the
gallons/per second that the hose adds to the pool(positive number). If
the drain drains faster than the hose fills the pool drains.

That is exactly what I am arguing you must do to look at crowding out.
You have to add the negative effect on inflation from the decrease in
aggregate demand to the positive effect from an increase in the money
supply (due to the Fed buying bonds to control the interest rate). This
means that the AD effect can weaken the effect of inflation due to the
buying of bonds.

>>Again this is ceteris paribus. Interest rates have been steady and have
>>been lowered due to Fed policy. Over the 1980's the interest rates
>>soared as the deficit rose.
>
>
> Flat wrong. The 1980s saw a general downward trend in interest rates,
> both long and short rates. The 10-year treasury rate got as high as
> 12.84% in 1980. In 1989 it was never above 9.36%.
> http://www.federalreserve.gov/releases/H15/data/m/tcm10y.txt
>

Real interest rates. The inflation rate was much lower in 1989 than in
1980. Now try comparing 1983 to 1989 what do you see? The deficits and
tight monetary policy did not come into play until after the tax cut
which was around 1985.

Again learn some economics. If you don't like principles books you could
try David Romer's first year graduate text on Macro.

Relevant Pages

  • Re: Bush busts Social Security with massive deficits
    ... >That does not mean debt does not cause inflation. ... >faster than deficits are pushing them up then inflation rates fall. ... >> rising government debt and the inflation rate which is no higher today ...
    (sci.econ)
  • Re: A Glaring Lack of the Obvious
    ... exceed the inflation rate, please tell me. ... At what bank? ... not as affected by inflation as the average person. ... Colesville Road until I caught up to and passed the bus, ...
    (rec.arts.sf.written)
  • Malaysias inflation hits 27-year high
    ... Malaysia -- Malaysia's annual inflation rate ... cost of food and transport soaring, the government said. ... Consumer prices in June rose 7.7 percent compared with the same month ...
    (soc.culture.malaysia)
  • Recession in America reduces inflationary pressure on Cambodias price indexes
    ... Inflation could nearly halve on falling fuel costs: ... Finance ministry officials hope lower global oil prices will ease ... inflation rate by January, officials said Thursday. ... announced that petrol prices would drop to 4,000 riels per liter ...
    (soc.culture.cambodia)
  • Re: OT Political ad
    ... Reagan deficits. ... inflation of around 2%), which IMHO was a great policy. ... the US cannot itself control ... The pegging of the dollar to gold was really a pegging of other ...
    (alt.sports.baseball.bos-redsox)