Inflation, Now Whipped
Robert Samuelson’s makes note of one of today’s big non-stories: The absence of inflation:
“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.
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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.
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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.
Not only has monetary policy improved dramatically since the early 1980’s, but tax-rates have been made more conduceive to growth, deregulation in many sectors have freed up capital and labor, trade agreements have sparked economic activity and so forth. Low inflation is Alan Greenspan’s legacy, but low inflation coupled with steady growth is Ronal Reagan’s legacy.
