The question is if it is 1947 or 1977. In 1947 we had a year and a half of
double digit inflation. It was bad enough to spook Ike who kept expecting it
to return while he was president and blamed it on greed. But Milton
Friedman's plucking model says everything depressed comes back 1.2x. Now
public works are effective when interest rates are near or below zero (making
payback really cheap) and unemployment is high. For over a decade we have
had a near deflationary liquidity trap. In the 1970s they got stimulus
backwards, as did most hyperinflationary banana republics. And while oil
prices can fall again in an instant, once wages rise, they rarely drop. So if
taxes, particualrly on income, drive wages up, inflation will be persistent
like the 1970s. But inflation obliterates these therefore fictitious
inflationary wage gains.
--
Vasos Panagiotopoulos, Columbia'81+, Reagan, Mozart, Pindus
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