On Monday, November 05, 2001 7:34 AM Spudboy100@aol.com wrote:
>> Is there any "real" evidence that the Fed is completely to blame here?
>> Could there not also be some blame to be shared by the economists who
>> were pointing out the tremendous gains in productivity that were
>> being attributed to the application of information technologies
>> (finally), or to the accumulation of wealth that migrated into
>> the hands of VCs who spent it all too often on yet-another
>> dot-com business plan, or on the newly minted stock owning
>> public who felt they had to play the market at never-before-seen
>> P/E ratios or risk losing the lottery?
> I believe the Greenspan economy, which was based on the then, West German
> economic idea of fighting inflation first was what highlighted the 1990's
> economic boom. Greenspan was confident, as his German intellectual
> that if one fights inflation and thus, refuses to permit the normal
> cycle to close, one can have sustained growth.
The lowering of the interest rates during the mid to late 1990s shows that,
even if Greenspan's rhetoric had been anti-inflationary, the Fed's actions
That said, the problem of measuring inflation has to be dealt with.
Unfortunately, the usual economic indicators are not the best way to measure
inflation. Why? Well, inflation generally effects not overall price level
but relative prices. This is because inflation takes time to move through
the whole economy and because some prices are more flexible than others.
(For examples of price flexibility differences, consumer electronics tend to
be less flexible in price than, say, sweet crude oil.)
I bring this up because the Fed could low interest rates below the market
rate -- i.e., inflate -- but, because it is looking at the wrong set of
indicators at the wrong time think it is not inflating. (Likewise with
deflation. This is only another argument for a free banking system and
against a centralized or government controlled one. See the works by Dowd
and other I cited in my reply to Robert Bradbury.) So, even if the Fed had
the best of intentions, it might botch the job. I think this is what
happened, since I believe most of the inflation went into the technology
> Caveat: One clearly cannot do this during a fuel price game by OPEC, or a
> national emergency, like we are experiencing with this Islamist War.
What would constitute, for you, conditions under which one can do this?
There will always be some crisis the Fed or other regulators can blame if
their plans and policies don't work out... I'm not being sarcastic here,
but just trying to avoid people falling on such crises or emergencies as the
crutch for bad institutions, policies, or decisions.
Also, OPEC has pretty much stabilized its oil prices. The prices have not
gone up much lately and actually lowered a little. (Some of this is no
doubt because of tapping into the US Strategic Oil Reserves...) In fact, as
others pointed out (and corrected my mistake in earlier posts), a major part
of the increase in some oil products' (e.g., gasoline) prices has more to do
with increased taxes and other US domestic regulatory measures (such as fuel
additives and the closures of many refineries due to new regulations and
In the long run, if OPEC raises prices too much, it will create problems for
itself as other sources of oil and energy as well as conservation measures
will become more economical.
> So, in
> fact, the hurd instinct which rules the stock market, affected it weakest
> link, the dot.coms, last year.
Part of the problem is the Fed's policies have encouraged more risk taking
than the market can support. Since it was inflating, it was helping people
to make bad investments. There was too much money out there to invest. A
tighter policy would have avoided some of this. (A free market in banking
would have been optimal.) This is known as the moral hazard problem. If
you create the conditions for wreckless behavior, don't be surprised if you
get wreckless behavior.:/
> My repeated suggestions for placing energy
> security first, is also a way of tamping down on OPEC oil shennanigans,
> liberating ourselves from their greed and stupidity.
How would you recommend doing this?
> This may have a salutory psychological effect on its own, in knowing that
> America's energy-economic future is on a firmer footing.
Maybe so. Of course, most US oil, IIRC, does not come from the Middle East.
(Other OPEC nations, such as Indonesia, Mexico, Nigeria, and Venezuela I'm
not sure about. I've heard figures touted that more than half of the US's
oil is domestic. No time to look this up right now. Would someone else
care to? Thanks in advance!)
See "Macroeconomics for the Real World"at:
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