Previous Do Full-Time Faculty Members Help Students Complete College? |
Next |
June 17, 2009, 07:11 AM ET
Inflation Watch: Put Down Your Binoculars
Despite what you hear from Fox News — that massive stimulus spending and unprecedented loose monetary policy will cause harmful inflation — there are, sadly, few signs of future inflation and a lot of signs of a depressed world economy.
It’s not that inflation doesn’t matter. On the contrary, the ability of producers to raise prices is a welcome sign of economic vitality. If inflation is our most biggest worry, let’s party now. Choose: price increases (inflation) or price decreases (deflation). Any sane society chooses inflation, hands down. An important sign of mental health is not the absence of worry, but the presence of the appropriate worry.
Inflation is not the appropriate worry.
The key measure of inflation, the consumer price index, has had its steepest drop since 1955 this spring. The data released at 8:30 this morning (tune in at the Bureau of Labor Statistics, will show little inflation pressure. Trust me.
Economists use several measures to gauge signs of inflation: the economy and investor behavior. The most important are the economic fundamentals: (1) whether workers are in short supply and can push up wages and (2) whether merchandise is flying off the shelf and factories are working overtime to keep desired inventories in stock.
We see the opposite.
This is the softest labor market in 25 years. The unemployment rate for adult men is much higher than the rate for women, over 10.5 percent versus 8 percent.
And the nation’s capital stock is unemployed too, measured by the rate of “capacity utilization.” For the United States industrial economy, that rate has fallen to its lowest rate since we measured the capital unemployment rate in 1967. As a nation we use 68.3 percent of our capacity; before now, the lowest rate was 70.9 percent in December 1982.
You can worry about core inflation all you want, but that will distract us from the pain and suffering that comes from shuttered factories, empty storefronts, and flattened social services.
Add Your Comment
You must be logged in to add a comment. Please login now or create a free account.