Thursday, September 20, 2012

Inflation Expectations and Quack Economists

There have been a lot of quack economists recommending that the Fed raise inflation expectations as a means of increasing overall economic activity and employment.  The following graph (from Cullen Roche) shows pretty clearly that this has not been effective:

Inflation expectations have spiked a couple of times in recent years and inflation, as measured by CPI, has jumped a couple of times.  But wages have steadily decreased.  Thus, increasing inflation has been of the bad type (food, gasoline) which decreases purchasing power for workers whose wages have continued to decrease.  Goosing inflation expectations is quack economic medicine which has masked a continuing deterioration in purchasing power...


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