23 Apr 2014

Quick Observations on Inflation in the 1970s

Gold, Inflation 60 Comments

“Gold bugs” take it for granted that it was no coincidence that the US got hit with stagflation in the 1970s, because Richard Nixon infamously severed the dollar’s last tie to gold in 1971. Others, however, dispute this connection. So I thought it worthwhile to make a simple case in defense of the gold bugs:

In the above chart, the blue line is year/year percentage increase in the Consumer Price Index (CPI); it’s what most people nowadays mean when they ask, “How high is inflation running?” The red line shows yr/yr percentage increases in M2, which is a particular measure of the quantity of money which includes currency but also commercial checking account balances. It is a popular measure of how much money “the public is holding.”

As the chart shows, yes indeed there was a sharp jump in the rate of money growth after Nixon cut the link to gold. More generally, there were two long periods where the rate of money growth in the 1970s was head-and-shoulders higher than it had been in the 1960s. The only time money growth crashed in the 1970s appears to be an effort to get price inflation (the blue line) to come back down. This accords with commonsense stories about the printing press and the business cycle: The authorities can print money and goose the economy, but as price inflation gets out of control they have to slam the brakes and cause a bad recession to get it back under control.

But notice something else: Year/year CPI inflation didn’t break the 10% mark until February 1974, several years after Nixon severed the tie to gold. Consumer prices didn’t instantly respond to the new monetary policy. Also, the chart clearly shows that price inflation rates bounced all over the place during the 1970s; it wasn’t a continuous upswing throughout the decade.

60 Responses to “Quick Observations on Inflation in the 1970s”

  1. Cosmo Kramer says:

    I’d like to get a lot more in depth in this subject. Particularly because our opposing economic schools blame inflation on “supply shocks”. Also, there is a minority of economists that believe QE is Deflationary because it removes income from the private sector. And similarly….. high interest rates are Inflationary, due to higher payments from the gov’t into the economy.

    In my new video, I quoted Hazlitt (very briefly) on this topic. I would like some more ammunition, so to speak.

    • Enopoletus Harding says:

      I can see how one can blame the first stagflation (1973-5) on supply shocks, but I can’t see how one can blame the stagflation of 1980 on supply shocks. Inflation was hitting over 10% in 1979 before any oil price increases. And energy was lagging the inflationary trend in 1979.

  2. Transformer says:

    To get a full picture of the relationship inflation and the money supply you also need to know the velocity of money and the growth rate of RGDP.

    I assume that the above chart is “a simple case in defense of the gold bugs” because you believe that pre-1971 the ability of the fed to increase the money supply not related to velocity changes and RGDP changes was limited. Is that correct ?

    • chamuiel says:

      Velocity of money.

      I know it flies out of my hand faster than it flies in.

      So I would think the velocity of money is pretty fast.

  3. joe says:

    Real GDP grew 3.17% from 1970 to 1980. Stagflation refers to the 16 month recession which lasted from November 1973 until March 1975. As you can see inflation reached 12.3% in Dec 1974. There was not stagflation throughout the 70s.

    Was the stagflation during that recession entirely due to increase in M2? No.

    1973 oil crisis
    http://en.wikipedia.org/wiki/1973_oil_crisis

    • Richie says:

      Dr. Murphy wrote “IN the 1970s”, not “throughout.” Big difference.

    • RIchard Moss says:

      According to what I see on FRED, in 1974 real GDP per capita fell to -1.5% YOY, and went positive from there by mid 1975.

      https://research.stlouisfed.org/fred2/series/USARGDPC

      Even if the oil crisis explained the entire YOY fall in per capita GDP, I don’t see how this would square in a significant way to a general rise in prices of 12.5% YOY over roughly the same time period.

      • Philippe says:

        wage-price or price-wage spirals might explain it. i.e. the conflict theory of inflation.

        • Major_Freedom says:

          Wage push theory of inflation is untenable.

          If wage rates increase in a spiral, then itwould quickly burn itself out in unemployment and unsold goods.

    • Major_Freedom says:

      joe:

      No, it couldn’t have been the oil embargo.

      If the price of oil rises, then other prices will tend to fall, because what makes possible a rise in prices for oil is people reducing their spending on other goods. Other prices would remain the same, or fall.

      The signifiant rise in the general price level that took place during the 1970s required a substantial rise in the quantity of money.

  4. David Beckworth says:

    Bob, I agree loose monetary policy was the difference during this time but note that inflation begins to become unmoored in the mid-1960s before the gold standard break. Most observers trace the outbreak of the “Great Inflation” to this start date.

    The closing of the gold window should be is akin to what a divorce is to a troubled marriage. Marriage problems start well before the divorce. The divorce is the final act of recognizing the marriage has failed. So was it with the closing of the gold window in the early 1970s.

    Also, it is dangerous to look just at the money supply and conclude it is inflationary. We have to look at money demand too to know if the money supply is excessive. So the M2 growth rate series by itself can be misleading.

    • Bob Murphy says:

      Thanks David, all good points.

    • Major_Freedom says:

      David:

      I agree with everything you said, until this:

      “Also, it is dangerous to look just at the money supply and conclude it is inflationary. We have to look at money demand too to know if the money supply is excessive. So the M2 growth rate series by itself can be misleading.”

      While it is true that demand for money holding is an additional factor (to money supply and real supply) that determines prices (since the “demand” in “supply and demand”, is itself a function of money supply and money holding), these facts do not imply that it is “dangerous” to look at money supply and conclude money supply is “excessive”.

      What you are actually saying is that a gradual increase in money supply as what would likely occur in a free market cannot have a government backed guarantee that there will be enough monetary inflation to counter-act the effect of any market driven rise in money holding times. That is, a government backed guarantee is desirable because it will make us “safer”, since we wouldn’t have to worry about unexplained (at a given time) reductions in “spending”, which typically leads to temporary unemployment and “output” reductions.

      If you want to feel safer, OK, but monetary safety is maximized in a maximally decentralized monetary system. It is not actually misleading to look at money supply, since the money supply is what private producers of money would in fact be providing their customers. They would not be providing aggregate spending to them, just like Ford and Toyota are not selling miles driven to their customers. They are providing cars.

      Money producers provide money, not spending. Spending is one such use of money. The other is holding, which is just as important as spending.

      Some economists, as is their wont to do in most other things, want to compartmentalize and separate money into its supply, and how many units of money are exchanged.

      The reason free market advocates look at money supply, is because that is what the suppliers would be incentivized into actually providing the market, and the resulting relative price signals would enable a learning opportunity not available in fiat systems. This is why they say that our judgments in a fiat economy should be based on reasonable estimates of the difference between the quantity of money issued in the existing economy, and in a free market.

      Private providers of money will expand and contract their production of money commodity *not* based on how many dollars everyone wants to hold in the aggregate. That is actually indeterminate since, short of outright rejection of a commodity for use as money, the desire for more money owned is practically infinite. You ask anyone if they want to own more money and they will say yes no matter how many dollars they own. If they intend to spend that increase right away, then someone else must want more to own. This is what I mean by a practically infinite desire for more money in the aggregate.

      A central bank can never satisfy this demand for more money, which is why even market monetarists don’t actually mean what they say when they say “the market is signalling people want X amount of additional currency.” No, what the market monetarists are actually saying is that they want the central bank to print less than the amount people as a group want to hold at that time. How much less? As much less that would have the outcome of what the market monetarists really want, which is, today at least, a less than 10% annual growth in total spending. They may believe in their mind that they are using a “market” based approach, but it really isn’t. It is setting a political goal, and constraining the market to this, even if a free market would have generated less or more money, or less or more spending, any given time.

      Better to reason from a supply change than a spending change, regardless of what is happening to output or employment. What should matter is economic freedom.

      • Philippe says:

        “the resulting relative price signals would enable a learning opportunity not available in fiat systems”

        You are assuming that in this imaginary world of which you speak, whatever happens in the imaginary market is the best that could possibly happen in any given situation, anywhere, in any possible universe .

        Basically, your ideology is: I have an imaginary world in which everything that happens is the best that could possibly happen in any possible world. THEREFORE REALITY IS WRONG.

        • Major_Freedom says:

          No, my ideology is about this Earth, and this world.

          There is no universe in which humans can know free market prices in an absence of free markets. It is impossible.

          My “ideology” is that particular actions that are being taken by certain people, in this world, are destructive to other people’s ends in the short run, in this world, and destructive to everyone in the long run, in this world. Not that “reality is wrong.”

          To criticize certain people’s specific choices and actions is not a condemnation that reality is wrong. It is that certain people’s ideas are wrong and/or their actions are destructive, when they can think differently and act differently.

          Your ideology is that everything that happens, should have happened, and must have happened, and that humans could not have chosen any other course of action. That all notions of ethics are an illusion. That as soon as anyone thinks of ways to improve the world, they are necessarily deluding themselves.

          Philippe, your ideas are wrong. There is nothing wrong with thinking that we can learn and act more productive and more free than past generations of people.

          If you seriously believe that all ideas are wrong if they do not support every action that every human takes, then you are contradicting yourself, for you are having imaginary delusions of a world in which I write differently than I am actually writing.

          If you believe that your ideas of a better world, i.e. one where I say what you think is right, is not an illusion, then you won’t convince me that everyone else can’t do the same thing.

          Yout ideology is that reality is wrong, because you’re calling me wrong.

        • Tel says:

          Can you explain the measurement you took in order to prove MF wrong? I mean the “reality” bit, what observation of reality are you basing your argument on?

          • Philippe says:

            I didn’t prove MF wrong. You can’t prove MF wrong because he is not talking about any world which has ever existed. MF is talking about an imaginary world which only exists inside his brain.

            • Philippe says:

              to clarify:

              MF defines whatever happens in his imaginary world as the best that could possibly happen in any world.

              So it is completely circular.

              1. posit an imaginary world, and assert that whatever happens in that world is necessarily the best that could possibly happen in any world.

              2. denounce the real world because it is different to your imaginary world.

              3. use lots of invective when people turn around and say “what the **ck are you on about you crazy person.

              4. use the word ‘violence’ a lot to make yourself feel morally superior.

              • Tel says:

                What did you mean by “THEREFORE REALITY IS WRONG”?

                What part of reality contradicts MF?

              • Major_Freedom says:

                No Philippe, I already told you that my ethics are applicable to THIS world.

                They refer to the people actually living and the means of production on Earth.

                Just because what I think is a just ethic, does not match what everyone is doing, it doesn’t make my ethics wrong or flawed.

                Are you really unable to distinguish between what people do do, and what they ought to do?

                Are you saying that the holocaust or Stalin’s purges were necessary, solely because they took place? That there is nothing anyone could have done differently to avoid these events?

                You do realize that whenever YOU say that Mr. X acted immorally, or unjustly, or even if you say that he should not have done what he did, you yourself would be necessarily introducing what you are calling an “imaginary world” into your convictions. For you would be imagining a world where Mr.X did the right thing instead, and yet that world does not “exist.”

                Your complaints about what I am saying imply that you yourself reject any and all notion of right and wrong, amd all morality.

                Is that what you really believe? I have asked you this before, and yet you keep evading it and posting these silly posts that are not making any criticism and yet they’re worded *as if* I am doing something wrong in your mind.

                Which is its own rather funny irony because that would imply your imagination takes precedence over what I am saying and doing. Lol

                Think more about this, please.

            • Major_Freedom says:

              Philippe, if you can’t prove me wrong, what is your beef?

  5. tomepats says:

    M2, CPI and recessions seem to correlate really strongly in this chart for the 70s and 80s. Why does the correlation seem to end after that?

  6. Philippe says:

    Bob Murphy,

    “This accords with commonsense stories about the printing press and the business cycle: The authorities can print money and goose the economy, but as price inflation gets out of control they have to slam the brakes and cause a bad recession to get it back under control.”

    M2 is not “printing press money”. “Printing press money” is central bank money, i.e. MB, or total currency, plus reserve deposits held at the central bank.

    M2 is currency held by the public (outside of bank vaults), plus demand deposits at commercial banks, plus savings and time deposits at commercial banks, plus retail money market mutual fund shares.

    Demand deposits and savings/time deposits are created by commercial banks, not by ‘the authorities’.

    I made this graph at FRED, which shows MB, M1 (currency held by the public outside of banks, plus demand deposits at commercial banks), M2, and the Consumer Price Index, between 1950 and 2008.

    https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=ypL

    The yellow line is the monetary base (MB), or “printing press money”. The green line is M1.

    As you can see, there is no apparent relationship between “printing press money” and the CPI over this period at all.

    • Philippe says:

      just to clarify:

      Bob Murphy claims that the graph he shows “accords with commonsense stories about the printing press and the business cycle: The authorities can print money and goose the economy, but as price inflation gets out of control they have to slam the brakes and cause a bad recession to get it back under control.”

      However, the graph I linked to shows that large yr/yr percentage increases in money created by the ‘printing press’ of ‘the authorities’, has no apparent effect on, or relationship to changes in the CPI.

      https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=ypL

      You can clearly see that there are large yr/yr percentage increases in central bank money (MB) after 1980, with no similar effect on the CPI.

      So Murphy’s “commonsense” argument about the printing press and CPI is factually incorrect.

      • Richard Moss says:

        However, the graph I linked to shows that large yr/yr percentage increases in money created by the ‘printing press’ of ‘the authorities’, has no apparent effect on, or relationship to changes in the CPI.

        To the contrary – I definitely think a correlation here (if that is what you are questioning) looks plausible.

        I also think that if you really believe there is no correlation, you undermine the ‘conflict theory of inflation’ explanation you offer up a few comments above.

        • Philippe says:

          “I definitely think a correlation here (if that is what you are questioning) looks plausible”

          How exactly? Please explain.

          After 1980 There are large yr/yr percentage increases in base money (created by the central bank, i.e. currency and reserve deposits) with no corresponding increases in the CPI.

          If you want an even more obvious demonstration, one need only extend the chart beyond 2008:

          https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=ytj

          • Richard Moss says:

            Phillipe,

            Austrians reject the quantity theory of money – they do understand there is no strict correlation between base money increases and CPI (e.g. that demand for higher cash balances can thwart high CPI despite large increases in base money – see Bob’s response to David Beckworth here on this thread).

            But Bob’s post had to do with the 70’s – and there I think thereis evidence of a correlation between base money and CPI. If we looked at the demand for cash balances during that period (which I am not sure how to do) and found it more or less stable – would you really maintain that there was no evidence of correlation??

            And again – I don’t think you can offer up a conflict theory of inflation to explain that period and then just a few posts later say there was no during correlation during that period at all. (Probably better if you don’t anyway – because it looks to me like there are jumps in base money and then jumps in M2 which would support Bob’s position).

            • Philippe says:

              Richard,

              I am not saying that there is no correlation between base money and the CPI in the 70s. What I am saying is that Bob’s “commonsense” story about base money and the CPI does not hold true when you look at all the data.

              Firstly, Bob presents a graph showing M2 and then talks as if all money is created by the central bank , which is not true – M2 is mainly money created by commercial banks.

              Secondly, Bob’s “commonsense” story doesn’t hold at all beyond the timeframe he presents here.

              • Richard Moss says:

                Sorry Phillipe – you are just wrong when you say Bob implies that all money is created by the CB. He writes;

                The red line shows yr/yr percentage increases in M2, which is a particular measure of the quantity of money which includes currency but also commercial checking account balances. It is a popular measure of how much money “the public is holding.”

                As far as the story holding beyond the timeframe he presents – I think it holds just fine from the late 90’s to 2000? from early 2000’s to mid 2000’s?

              • Richard Moss says:

                forgot to mention it also seems to hold well late 80’s to early 90’s

              • Philippe says:

                talks as if all money is created by the central bank”

                Bob notes an apparent correlation between M2 and the CPI, and then says that it accords with the “commonsense” view which equates ‘money printing’ by ‘the authorities’ with inflation.

                Also Bob’s explanation of what M2 is, is incomplete. M2 is not just currency plus checking account balances.

                “As far as the story holding beyond the timeframe he presents – I think it holds just fine from the late 90′s to 2000?… forgot to mention it also seems to hold well late 80′s to early 90′s”

                You’re really grasping at straws.

              • Richard Moss says:

                You’re really grasping at straws

                Well, I don’t think so, and I think I could show you that, but maybe it’s better I don’t. If I did you would only accuse me of saying all money is created by a central bank.

            • guest says:

              Unless I’m misunderstanding what is meant by the Quantity Theory of Money, I do not reject it.

              To acknowledge that the effect on prices in general is not immediate is not to reject the theory.

              • Richard Moss says:

                guest,

                From wikipedia;

                In monetary economics, the quantity theory of money states that money supply has a direct, proportional relationship with the price level. While mainstream economists agree that the quantity theory holds true in the long run, there is still disagreement about its applicability in the short run.

                http://en.wikipedia.org/wiki/Quantity_theory_of_money

                It was the short run ‘meaning’ I had and mind – and that is this meaning Mises explicitly criticizes in his Theory of Money and Credit.

  7. Lord Keynes says:

    Interpreting these charts is pointless unless you understand endogenous money theory, mark-up pricing, and the supply shocks and wage-price spirals of the 1970s:

    http://socialdemocracy21stcentury.blogspot.com/2014/04/bob-murphy-on-1970s-inflation.html

    Clearly you do not, and until you do your analysis is grossly deficient.

    • Eduardo Bellani says:

      So, empiricism is pointless without an underlying theory?
      MF, is that you cross dressing ?

      • Major_Freedom says:

        I gave LK motivation to dress better.

        It is actually a good thing to see him agree with the Austrian principle that all past data is meaningless without a (a priori) theory to understand it.

        • Lord Keynes says:

          That is a falsehood. While I am analyzing the data above with the theories of endogenous money theory and mark-up pricing, they in turn are also known a posteriori, not a priori.

          They are empirical theories, and nowhere have I ever claimed that “past data is meaningless without a (a priori) theory to understand it.”

          You’re just making things up, as usual.

          • Bob Murphy says:

            LK, just so you know, I am zapping other people’s remarks who are responding aggressively to you. But you sound pretty hostile. I don’t know if it’s partly a cultural thing or what; maybe you’re British?

            Anyway, please try to tone it down, because I’m neutering others and not letting them respond to you in tone.

          • Major_Freedom says:

            LK:

            “That is a falsehood. While I am analyzing the data above with the theories of endogenous money theory and mark-up pricing, they in turn are also known a posteriori, not a priori.”

            But then the same problem remains. How would you know how to interpret THOSE charts and THOSE data without a theory, the same way you’re claiming we can’t interpret the above chart on this blog, without a theory?

            “They are empirical theories, and nowhere have I ever claimed that “past data is meaningless without a (a priori) theory to understand it.”

            So then are you saying that only the specific data in this specific chart cannot be interpreted without a theory?

            If so, on what grounds would only this data require a theory to correctly interpret it?

            If not, if all data requires a theory, then you can’t claim that the foundation of your knowledge is empirical. This is because EVERY data would require a theory to correctly interprept it.

            That means your foundation is not actually a posteriori, but a priori.

            “You’re just making things up, as usual.”

            No, I am just correctly pointing out your contradictory premises as usual.

            • Lord Keynes says:

              There is no epistemological problem here.

              Our theories of the external world go back ultimately to a posteriori knowledge, experience and inductive argument.

              Our belief in the very existence of other human beings and even an external world, for example, is based on inductive arguments by analogy and experience.

              If you can provide an a priori argument for the existence of other human beings or an external world, then do so. But all apriorist fantasists like you have failed.

              • Eduardo Bellani says:

                ‘If you can provide an a priori argument for the existence of other
                human beings or an external world, then do so. But all apriorist
                fantasists like you have failed.’

                I think I can take this one. By the very act of argumentation, *you*
                are already assuming the existance of other racional beings. That is
                one of the assumptions of the act of argumentation. In other words,
                there is no need to present an a priori argument for the assumptions
                of argument itself. Consult Habermas and Hoppe to learn more about
                this.

                Not so hard, in terms of logic. Pretty hard, in terms of cognitive
                dissonance and years of intellectual investment in an erroneous
                position.

                Take care.

              • Major_Freedom says:

                LK:

                We have not failed. We have succeeded. I know we have because you cannot prove that your empiricism has an a posteriori foundation.

                You did not even respond to my argument that if data requires a theory to correctly interpret it, then what you claim are the data that a posteriori back those supportijg theories, would also require an other, different, more fundamental theory to correctly interpret that data.

                And those more fundamental theories that you claim are also a posteriori, must also then be backed by data of their own, but once again, THAT data would also require yet another, even more fundamental theory to correctly interpret it.

                Yes, there is in fact a HUGE epistemological flaw in your worldview. You are just evading it.

                Take for instance this statement you just made:

                “Our theories of the external world go back ultimately to a posteriori knowledge, experience and inductive argument.”

                You cannot even see that this sentence contradicts itself.

                The reason your statement contradicts itself is because that very statement is not itself empirical. For if it were, then there must be “ultimate” data that supports it that does not itself need any prior theory to be understood, for then we would talking about an ultimate theory that is being used to correctly interpret the ultimate data. And you say this ultimate theory does not exist, ot cannot be known.

                But we know, and you said so yourself above, that data requires a theory to understand it. Thus, even “ultimate” observable data would require a theory to correctly interpret it. If it doesn’t require any theory to interpret correctly, then how exactly is it interpreted correctly? It can be more observable data, because e are already talking about the ultimate data.

                LK, a priori theory is so close to where you are. You just have to realize that you understanding the above IS ITSELF the very a priori theory you wanted to be shown tells us something about the real world. Your understanding is a real world activity. That understanding is what enables you to even conceive of such a thing as empiricism and ultimate data. Unfortunately, these thoughts are built on a self-contradictory foundation. In short, you are denying or refuse to accept that your mental activity is the ground of your knowledge of the external world. In order to even talk about ultimate observable data, there is something going on there that grounds your interpretation of the ultimate observable data.

                You can’t refute this by merely asserting otherwise without showing. In fact, all showing presupposes a theory as well. So even your argument that empiricism is the foundation of all knowledge, presupposes a theory, and that theory is itself not empirical.

              • Major_Freedom says:

                Typo:

                Meant to say

                “It can’t be more observable data, because we are already talking about the ultimate data.”

    • Richard Moss says:

      [In response to LK:]

      Bob Murphy has engaged ‘endogenous’ monetary theory – as noted by an apparent imposter of yours;

      http://socialdemocracy21stcentury.blogspot.com/2012/01/david-graeber-versus-robert-murphy.html

      • Lord Keynes says:

        He’s engaging Graeber’s theories on the origins of money there, not endogenous money.

        • Richard Moss says:

          Bob is criticizing Graeber’s theory that the origin of money was ‘endogenous’ (as opposed to ‘exogenous’ as Austrians like Menger argued).

          This doesn’t count as a criticism of ‘endogenous money’?

          • Richard Moss says:

            correction –

            this doesn’t count as engaging the theory of ‘endogenous money’

          • Bob Murphy says:

            Richard, you are correctly summarizing the content of what I’m doing in that Graeber review, but I think LK is more talking about the idea that the Fed only directly controls base money, whereas the public’s demand for cash balances etc. controls aggregates like M1 and M2. I.e. people often dispute the simplistic story in econ textbooks where it seems as if the authorities just dump a certain stock of money in the economy, end of story.

            • Richard Moss says:

              Fair enough – but hopefully he might now also back off of his claim that (my paraphrasing) you clearly do not understand endogenous money theory.

            • Jonathan Finegold says:

              And in the case of base money, he’s also saying that the amount of base money is indirectly determined by the demand for money. The Fed might issue it; but it issues it to “accommodate” member banks which need reserves.

        • Major_Freedom says:

          If money is endogeneous, why aren’t the banks creating trillions of dollars for themselves? What is constraining them?

    • Cosmo Kramer says:

      Wage and price rises are a consequence, not the root cause. Alone, those evil spirals would just cause unemployment.

    • Enopoletus Harding says:

      L.K., it seems that the “All Sectors; Credit Market Instruments; Liability, Level” series lags the M2 series. How do you explain this? I understand the stagflationary M2 growth in the 1970s was endogenous, but I’m still not quite clear on what caused it.

  8. Bob Murphy says:

    Hey kids, I’m going to be trigger happy on the “Trash” button for comments while we move to the New Blog Order. Don’t be offended if your comment gets zapped. It doesn’t mean I disagree with you, it means I don’t think it’s helpful in moving us to a polite discussion.

    And actually, I am going to err on the side of zapping people who pile-on my critics, while leaving a bigger margin for error (on the dimension of incivility) for my critics, for obvious reasons of trying to avoid favoritism.

    So don’t get mad if I zap something and you think somebody else’s comment was way worse yet survived. Also, I have things to do besides monitoring the comments 24/7, so don’t read too much into this.

  9. Enopoletus Harding says:

    Also, why does everyone forget the oil shock of 1999-2000, the third-most severe oil shock on record?

  10. Nutter says:

    Gold bugs are certainly vindicated. The illustrates Eric Beinhockers’ “wiggling jelly” outputs as complex reaction to inputs.

    Imagine a system with many sound waves of varying lengths, loudness, wavelength, frequency, occurrence. Some would reinforce each other, some would mix, some would cancel. The output would sound nothing like a simple sound or anything we would rcognize as much but random “noise”, even though it was anything but.

    Consider some major inputs (spending, signals, areas of concern, regulations, activities, etc) in those days:

    Including:

    OPEC embargo
    Syncuels corp

    Hostage crisis in Iran
    Sandinistas / commission on the march in S. America

    Clean water act spending / costs / contraction activities
    Changes in taxes – federal & state & local

    Interstate highway spending / financing / engineering / construction / materials demands
    Major changes on clean air regs

    OSHA / NIOSH / RCRA / TSCA
    LATE & post Vietnam

    Public distrust of govt.
    Golds run-up (& down)

    Multiple market manipulations / supply constraints causing severe pcice volatility in – sugar, limber, steel, fuels, etc
    Huge auto industry slump

    Arrival of large scale low-cost imported vehicles, steel, electronics
    NASA funding (changes & tech transfer toajor contractors)

    Nuclear MAD situation
    Resistance to communism in Eastern Europe

    Color TV
    Influence of music

    Prohibition of cigarette advertising
    Institution of EEOC

    BOOMERS in college and working age
    Synthetic fabrics / textile manufacturing in US priced out

    Drugs in popular culture
    Becomes apparent “beat” generation has no answers – just complaints & selfishness…

    Lack of clear moral leadership & discipline in politics / society
    Routine scandals related to sex, religion, govt, corps, everything…

    Medicare
    Great society’s results … A big scam and more distrust & enslavement

    Breakup of social codes to accommodate rules for food stamps, welfare, ADC, WIC, etc.
    High high high fed

    Many many more inputs that compete, interact, modify each other, complete with multiple time delays, serving to make simple understanding of the “system outputs” impossible (specially with no computers).

  11. Hillbilly says:

    The theories abound but none of u can prove that money supply in and of itself produces inflation > or < than the base line of any given m2 parameters. If u could we could all get rich by the formula. The gold bugs have taken a bath the last few years betting that federal spending and low interest rates would set inflation in motion just like the 70's chart above. Robert Prechter was right and continues to be. The best theory of all is that the production of worthless goods(in this case paper money) leads to something even more worthless. GI=GO

Leave a Reply