Marco Rubio Would Leave Economic Policy Rudderless
Stabilizing the national economy is one of the federal government’s key responsibilities. Is that too much to ask? OK, then, can we at least ask that the government not make things worse when instability strikes? Not if you’re Marco Rubio. Sooner or later an oil price meltdown, a banking crisis, or a Chinese hard landing ... Read more
Deconstructing ShadowStats. Why is it so Loved by its Followers but Scorned by Economists?
It is hard to think of a website so loved by its followers and so scorned by economists as John Williams’ ShadowStats, a widely cited source of alternative economic data on inflation and other economic indicators. Any econ blogger who has ever written a line about inflation is familiar with ShadowStats. Time and again, readers ... Read more
What Ever Happened to the Misery Index?
Remember the 1960s? The 1970s? Back then, inflation surged from one peak to another but failed to deliver the low unemployment rates promised by the Phillips curve. In fit of frustration, economist Arthur Okun invented what he called the misery index—the sum of the inflation and unemployment rates. As the following chart shows, those were ... Read more
Prices are Falling in the Eurozone, but is it “Real” Deflation?
The Eurozone has been on the brink of deflation for months. The latest data show that for the first time, consumer prices for the currency area as a whole (and for 12 of its 19 member countries) were actually lower in December than a year earlier. But is it “real” deflation? In a pair of ... Read more
What Lies Behind the Plunge of the Ruble?
Russia’s economy is in trouble. Growth has come to a halt. A recession looms in 2015. Inflation, interest rates, and capital flight are up. The government’s budget is under strain. More than any of these, what makes the headlines is the plunge of the ruble, which, at one point in mid-December, had lost half of ... Read more
What Quantitative Easing Did Not Do: Three Revealing Charts
The Fed has declared an official end to quantitative easing. It is a logical time to ask, did QE work? Danielle Kurtzleben gives the honest answer in a recent post on Vox: “It’s very, very hard to know.” Still, we do know three things that QE did not do. These are worth pointing out, especially ... Read more
Five Reasons Not to Fear Deflation: Which Ones Make Sense?
In a post earlier this week, I explained why a majority of economists fear deflation. They argue that deflation disrupts the operation of financial markets and labor markets in a way that risks touching off a downward spiral. At the same time, they say, deflation weakens the power of monetary policy to reverse the downward ... Read more
Why Should Europe (or Anyone Else) Fear Deflation?
This is the first of a two-part series on deflation, which continues with “Five Reasons Not to Fear Inflation: Which Ones Make Sense?” This additional post updates the euro deflation story through December 2014 and discusses the impact of oil prices on deflation in Europe. Europe is fearful as it teeters on the brink of ... Read more
Euro Area – Q&A on QE
By Reza Moghadam and Ranjit Teja: As inflation has sunk in the euro area, talk of quantitative easing (QE)—and misgivings about it—have soared. Some think QE is not needed; others that it would not work; and yet others that it only creates asset bubbles and may even be “illegal.” In its latest report on the euro area, the IMF assesses ... Read more
Is the Fed Behind the Curve?
Imagine Fed Governor Rip van Winkle started his nap at the beginning of 2007 and just woke up to find that inflation is close to the Fed’s objective and the unemployment rate is at its 30-year average. You could forgive him for expecting the federal funds rate to be close to its long-run norm of ... Read more