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Brad DeLong & Ray Suarez: Learning From Past Fights With Inflation <https://o vercast.fm/+TYi3MvO
lk>: a€~Economist Brad DeLong was feeling optimistic in February 2022, because inflation truly did
appear transitory. Weeks later, Russian
President Vladimir Putin launched the invasion of Ukraine, sending price shocks through the global
economy. The latest numbers indicate inflation is slowing, but people around the world are still
feeling the sting. While the US has it better than most, no
one is immune from the global economic slump. So what does inflation mean for our pocketbooks,
and for our mental health? Ray Suarez speaks with DeLong about why a little bit of inflation may be
good for the economy, but also signals to service-sector
and middle class workers that the system isna€™ t working for thema€!
Highlights:
Ray Suarez: This is On Shifting Ground. I'm Ray Suarez. Inflation can be scary. When it's out of
control, it burns through family wealth, creates panic buying, and can destroy trust in
currencya€!. Brad DeLong, welcome to On Shifting Grounda€!
[a€:]
Brad DeLong: The question has always been whether the right analogya€! for the [current]
inflationa€! was the decade-long seige of the 1970s, ora€! much more like what happened in 195 la€!
the Korean Wara€! anda€! inflation as the economy settled
into a new configuration^I and things then returned to normal without the Federal Reserve having to
do much more than lift a finger to raise interest ratesa€!. The right action to deal witha€!
inflationa€! depend[s] on whether the right analogy is the 1970s
or the 195la€! episodea€!. This last set of numbersa€l say[s]a€! this looks more likea€! 1951,
thana€! the 1970sa€!
[a€i]
Brad DeLong: As French politician Valeriy Giscard da€™ Estaing said back in the 1960sa€! that the
world economy runs on dollars is an exorbitant privilege that America has and an exorbitant
privilege that we take great advantage ofa€!
[a€i]
Brad DeLong: What put pressure on American business to offshore and export jobs on a large scale
was Ronald Reagan'sa€”the polite way to call it his a€oeconfusiona€na€”saying a€cel'm going to
balance the budget, I'm going to increase military
spendinga€! to fight the Cold Wara€! plusa€! cut taxes for the rich. By a lot.a€D And that simply
did not add upa€!. [So] US interest rates went much higher than other countriesa€™ interest rates
back in the 1980s. As a result, the value of the dollar went
Brad DeLong: The question has always been whether the right analogya€! for the [current]
inflationa€! was the decade-long seige of the 1970s, ora€! much more like what happened in 195 la€!
the Korean Wara€! anda€! inflation as the economy settled
into a new configuration^I and things then returned to normal without the Federal Reserve having to
do much more than lift a finger to raise interest ratesa€!. The right action to deal witha€!
inflationa€! depend[s] on whether the right analogy is the 1970s
or the 195la€! episodea€!. This last set of numbersa€! say[s]a€! this looks more likea€! 1951,
thana€! the 1970sa€!
[a€i]
Brad DeLong: As French politician Valeriy Giscard da€™ Estaing said back in the 1960sa€! that the
world economy runs on dollars is an exorbitant privilege that America has and an exorbitant
privilege that we take great advantage ofa€!
[a€i]
Brad DeLong: What put pressure on American business to offshore and export jobs on a large scale
was Ronald Reagan'sa€”the polite way to call it his a€oeconfusiona€na€”saying a€cel'm going to
balance the budget, I'm going to increase military
spendinga€! to fight the Cold Wara€! plusa€! cut taxes for the rich. By a lot.a€D And that simply
did not add upa€!. [So] US interest rates went much higher than other countriesa€™ interest rates
back in the 1980s. As a result, the value of the dollar went
way
up. Anda€! [so] the market sent every American manufacturing business in the
Midwest and elsewhere a big blinking red-light signal saying SHUTDOWN! SHUTDOWN! SHUTDOWN! YOU ARE
UNPROFITABLE !a€! That thea€!Reagan
administration mishandled the balance between taxes and spendinga€! did not focus on the long-term
supply side health of the American economy, in the right way, was what started the wave of
deindustrialization of the American Midwest in the 1980sa€!
[a€!]
Brad DeLong: In the 1990 when America got itsa€! fiscal house in ordera€! we were a very powerful
exporter of high technology, goods as well as servicesa€!. During that time of very low
unemployment and low inflation, the United States economy was
firing on all possible cylindersa€!. The big financial crisis of 2007 and the depression of
2008-2010, after whicha€! unemployment^! stays painfully high for most of a decadea€! [with]
extremelya€! low rates ofa€!inflationa€!. By 2021, people had
forgotten that therea€! was such a thing as inflationa€!. [Inflation] is painfula€!. You thought
that you had a bargain with the economy, in which you had your income, anda€! could go out and buy
the things you expected to buy at the prices you expected to
paya€!. This yeara€! prices 9% higher thana€! a year agoa€!. The system has betrayed youa€! offered
you a bargain, and thena€! did not keepa€! it. So you are going to be angrya€!
Brad DeLong: Coming out of that plague depression, we wanted to get everyone back to worka€! in
very much a new economic configuration^! with more goods production^! fewer people working in
retail storesa€! more ina€! logisticsa€!. We were
trying to rejoin the highway at speed. And so we left a bunch of rubbera€!. [That was] the
inflation of 2021a€!. The right reaction to that was toa€! shrug your shoulders and saya€! you
really don't complain about leaving rubber on the road when you
rejoin the highway at speed. But then in February of 2022, Vladimir Putin's Muscovy attacks
Ukraine. Oil and grain markets are disrupteda€I. There was the threat of Europe freezing and of
Nigeria and Egypt starvinga€!. To the reopening inflation wea€!
had [added] this Ukraine war inflationa€!. You really want to hunker down and try to economize
where you can, because the inflation does reflecta€! that aa€! a large chunk of the world's economy
is no longer working, becausea€! people who would be
shipping things out of Ukraine are instead hiding froma€! killer robots. And [we] hope that this
inflationary pattern does not become a self-perpetuating spiral like it did in the 1970sa€!
[a€!]
Brad DeLong: I will be looking closely at wages in the services sectora€!. Surces of inflation so
far have beena€! the Ukraine war supply-shock of grain and energya€! the bottlenecks ofa€! supply
chains during the Great Reopeninga€! rapidly rising
wages in expanding sectorsa€! goods production and wholesale deliverya€!. Then the general great
mass of services-sector employment [and wages]a€!. The first three sources of inflationary pressure
are now ebbing awaya€!. The economy has managed to
get workers into the sectors that needed to expanda€!. What's left isa€! people working in the
services sector annoyeda€! feeling able to demanda€! big wage increases next year to make up for
the fact that inflation was high this yeara€!
[a€!]
Brad DeLong: Thank you very, very much fora€! [this] wonderful show that you're running, [and] for
inviting me on.
Ray Suarez: You've been listening to On Shifting Ground, produced in partnership with KQED with
funding from listeners like you. If you want to support the program by becoming a member or by
making a donation of any size please go to
<http://worldaffairs.org/donate>a€!. Thanks for listening
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