Re: A Big Story, Missed (Samuelson)


..
spin.
The article and attached comments ignore the fact of a
speculative housing bubble and the threat that poses to banks,
the fast devaluing USD in world markets, loss of US labor
markets, and points to superficial indicators to support a
bogus theory that all is hunky dory.... it isn't.


Phil Scott


<imbibe@xxxxxxxxxxxxxx> wrote in message
news:1123230966.756534.311790@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
> http://www.washingtonpost.com/wp-dyn/content/article/2005/08/02/AR2005080201938.html
>
> A Big Story, Missed
>
> By Robert J. Samuelson
>
> Wednesday, August 3, 2005; Page A19
>
> We in the news business often miss big stories because they
> aren't
> announced by a corpse, scandal, invasion or controversy. One
> important
> story we're missing today is the absence of sharply higher
> inflation.
> Look at the numbers. For the past 12 months the consumer
> price index
> (CPI) is up only 2.5 percent; since 1997 annual increases
> have averaged
> 2.4 percent. So-called core inflation -- stripped of
> volatile food and
> energy prices -- has behaved even better. In 2004 core
> inflation was 2
> percent; recently the annual rate has been running at about
> 1 percent.
> The significance of these drab statistics may not be
> immediately
> obvious, so let's explain.
>
> Time was when an economic recovery in its third or fourth
> year -- and
> this one has run 3 1/2 years -- would generate rising wages
> and prices
> that would choke the expansion and lead to a recession.
> Between 1969
> and 1981, rising inflation (peaking at 13 percent in 1979
> and 1980)
> triggered four recessions. The worst, in 1981-82, inflicted
> monthly
> unemployment as high as 10.8 percent.
>
>
> Low inflation today underlies the economy's continued
> resilience. It
> especially helps explain low long-term interest rates and,
> hence, the
> housing boom. (As inflation falls, so do interest rates on
> mortgages
> and bonds, because there's less danger that loan repayments
> to banks
> and other lenders will be made in cheaper dollars.) Even
> many experts
> are surprised by the economy's new inflation immunities. "A
> year and a
> half ago, almost every forecaster thought inflation would be
> higher,"
> says economist Nariman Behravesh of Global Insight. One
> reason that
> higher oil prices haven't yet crippled the economy is that
> they haven't
> triggered a widespread jump in wages and other prices. There
> are many
> theories to explain the economy's greater inflation
> resistance: stiffer
> competition, higher productivity, spreading globalization
> and "slack"
> in labor markets. All may be partially true.
>
> Airlines would love to pass higher fuel prices along in the
> form of
> higher fares, but competition usually frustrates that. In
> the first
> quarter of 2005, airfares dropped 4.3 percent from a year
> earlier, the
> Transportation Department reports. Similarly, higher
> productivity (aka
> efficiency) and intense import competition have reduced the
> prices of
> many manufactured goods. In June new car prices -- after
> adjustment for
> quality improvements -- were actually 2.1 percent lower than
> 10 years
> earlier, according to the Bureau of Labor Statistics. Shoes
> were 2.3
> percent lower. Washers and dryers were only 1.7 percent
> higher.
>
> As for labor-market "slack," the theory is simple. If there
> are more
> job seekers than jobs, supply and demand keep wage gains
> down. Now,
> however, unemployment is only 5 percent -- fairly low
> historically.
> Still, companies don't seem to be bidding up wages and
> salaries to
> attract scarce workers.
>
> Over the past year labor costs have risen only 3.2 percent.
> One
> possible explanation is that there's more "slack" in labor
> markets than
> the unemployment rate suggests. Some discouraged workers may
> have
> stopped looking for jobs. This lowers the unemployment rate,
> because
> people who aren't looking for work aren't counted as
> jobless. Economist
> Katharine Bradbury of the Federal Reserve Bank of Boston has
> estimated
> that the unemployment rate might be one percentage point
> higher -- or
> more -- if labor-force participation rates were higher.
>
> Give all these theories their due. Still, the main reason
> for
> inflation's good behavior lies elsewhere: Expectations have
> changed. In
> the 1970s and early 1980s, the wage-price spiral became
> self-fulfilling. Because managers and workers believed there
> would be
> inflation, there was. Facing higher costs, companies
> immediately sought
> to pass them along in higher prices. Facing higher prices,
> workers
> expected to be compensated with higher wages. Companies
> obliged,
> fearing that otherwise they would lose good workers and
> knowing that
> they could then raise prices. From 1975 to 1981, labor costs
> rose 9.4
> percent annually and the CPI climbed 9.2 percent.
>
> The central legacy of the Alan Greenspan era at the Federal
> Reserve
> (his term ends early next year) is the suppression of this
> self-destructive psychology. The inflationary process of the
> 1970s
> stemmed from government policies of cheap credit and easy
> money that
> were intended to reduce unemployment. The decisive reversal
> of policy
> occurred in the early 1980s, when then-Fed Chairman Paul
> Volcker
> squeezed credit and caused a massive recession. By 1983
> inflation had
> dropped to about 4 percent.
>
> Greenspan has sustained that progress by preempting any
> resurgence of
> inflation; indeed, the Fed's recent increases in the
> overnight fed
> funds rate (from 1 percent in June 2004 to 3.25 percent now)
> have that
> purpose.
>
> It's easier to control inflation -- and stabilize the
> economy -- if
> people don't believe that high inflation is inevitable and
> are
> automatically raising wages and prices. Little wonder that
> the economy
> has done better in the past 20 years than it did in the
> previous 20.
> Since 1982 there have been only two recessions. But the
> transformation
> has occurred so slowly that most Americans simply take it
> for granted.
> It's a hugely significant story, even if it's mostly
> ignored.
> .
> .
> --
>


.

Relevant Pages

  • America Reversal of Fortune
    ... When the American economy enters a downturn, ... Housing prices have fallen ... this year the federal government announced the second-largest ... inflation, just as standard prescriptions call for lowering interest ...
    (soc.culture.cuba)
  • Re: Tu*.ng The^ !!!
    ... After wholesale prices climbed 7.4 percent, ... Worries Grow for Twin Evils of 'Stagflation' -- Stagnant Economy, ... Jobs, Surging Inflation ... drug-resistant strain topped 20 percent in some countries, ...
    (soc.culture.vietnamese)
  • Re: As Warren Zevon said,
    ... the goods-and-services sector of the economy ... people (new homeowners buying in at bargain prices, ... 50 cents or more) will make a lot of money. ... the biggest concern is inflation. ...
    (rec.music.makers.guitar.acoustic)
  • Re: As Warren Zevon said,
    ... the goods-and-services sector of the economy ... people (new homeowners buying in at bargain prices, ... 50 cents or more) will make a lot of money. ... the biggest concern is inflation. ...
    (rec.music.makers.guitar.acoustic)
  • Re: As Warren Zevon said,
    ... the goods-and-services sector of the economy ... people (new homeowners buying in at bargain prices, ... 50 cents or more) will make a lot of money. ... the biggest concern is inflation. ...
    (rec.music.makers.guitar.acoustic)