Excellent summary from three of my best friends on here. One thing I would add is that there is a story to the 1970s inflation that is very particular. There is indeed transitory inflation with the Vietnam War but like the 1950s it would have cleared.
What prevented it from clearing is that primary goods exporters were trying to industrialize like mad. The small bumps in inflation in the late 1960s changed their calculus because it drove up the price of machine tools and other industrial machinery in particular.
And to deal with that they began to think about how to create their own pricing power. The story is best known in oil when the OPEC began to realize they had teeth and break the 1950s era price agreements. But it wasn't just oil. It was all kinds of primary inputs.
And to add to this it also drove up primary goods prices IN developed countries. Especially after the "great grain robbery" where the USSR used its growing primary goods-driven FX to buy up US grain on the cheap creating shortage that drove up prices.
But the question is how did this happen? Well, first of all we know that energy infrastructure in the developed world was underinvested in during the 50s and 60s because prices were so low, you didn't need efficiency. So when prices went up, you were extra exposed.
And that wasn't something that wasn't unpredictable. There are all kinds of sources that show us the industry and regulators were aware of the problem. The issue is there wasn't a nexus for dealing with the issue when markets weren't responding.
This is what Leotneif called for in the 70s when he said we needed an active planning policy to deal with these problems before they become problems:


This is what we mean by supply chain resiliency.
And that hasn't changed. We still need bodies like this to avoid the big sledgehammer of interest rates. And it's also why the GND is disinflationary. It creates the long-term infrastructure to reduce input costs.
On an even larger scale, that's why we need a global development policy that puts financing and resiliency first. This is why Harrod and Keynes wanted a big reserve stock system to accompany bancor. That would be the ultimate price stability policy.
@_TimBarker and I are a week or two away from finally posting our WP on the inflationary conjecture as a result of the Cold War which will be really cool.
A former Russian central banker put it really well when I spoke to him off the record. In the 1990s when the system broke down due to a massive shift in the political economy, all they had was sledgehammers when what they needed was a screwdriver. That's how I see neoliberalism.
Failure of a planning system means you default to the rates instrument which is a blunt, blunt instrument.
BUT since Volker, we've just accepted that the only instrument we have is the interest rate. We've turned it into the defacto planning board without really thinking about what that means and if it is the right set of tools.
This is the background to @IrvingSwisher being right about why finregging your way out of a planning question isn't going to work. It's not the right instrument for the target (Tinbergen smiles from above).

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More from @BuddyYakov

16 Sep
I think you should all read it but I want to push back on all three readings a bit on the issue of how to time the Soviet experience and what that says about inflation and state capacity. I am going to be drawing on my forthcoming book and a R n R paper.
Thus the fate of academic historians who are detail mongers but going on. Tooze hits on the exact right point. The Soviet Union in 1989 is not China in 1988. The USSR is a highly developed economy that is suffering from a monetary overhang. Part one is right.
Read 22 tweets
13 Aug
The posting to policy pipeline continues.
I am legitimately happy to have helped with this. I think that it is the first step to a strong government response to many, many long-term problems and most importantly, builds the capacity to do more big fiscal policy.
The reason is we totally lack a government mechanism to understand capacity constraints and to mollify them. Capacity constraints limit public money and rising wages. The economy as a whole, like any enterprise, needs some spare capacity.
Read 6 tweets
29 Jul
There’s a lot I agree with in this Ikenberry piece about Quincy. Particularly the unholy left right alliance. But there’s something more telling here. Unlike the libertarians there’s no economic vision on the left that ties foreign and domestic policy
There is critique but no positive agenda. That’s why New Leftists like Kolko ultimately became allies of the right. It’s pure nihilism without a political economy and alternative.
The liberal position is no better. It’s all pleas without substance. There’s no world building.
Read 6 tweets
14 Jul
I think this was a very good podcast but I want to push back against the hostility to the oil story and how it links to wage and price controls.
First, @IrvingSwisher has rightly asked why inflationary episodes in the 1950s did not become endemic. There are probably a few answers including demographics but cheap energy is one of them. The developed world under invested in energy efficiency and infra:
@RajaKorman Image
Moreover, there is a particular political moment. By the late 1960s, you start having OPEC. OPEC initially makes agreements with the majors on oil price but through the 1960s they begin to become angrier at the fact that their exports buy less heavy machinery imports.
Read 21 tweets
17 Jun
I think there is something even more disturbing going on here. It's a purposeful sidestep about what really is the political issue. It isn't government waste and charity being better to "help" the deserving poor. It's what govt spending does in the fist place.
Government spending isn't about charity or maintaining social welfare for the worst off. It of course has that effect but more importantly, it levels the power of employers and employees. It gives workers an option to say no to conditions.
Through both purchasing power and by adjusting the output of the economy upward to where you can have full employment. The latter can bring the total output out but can also threaten the relative capital profits over wages and thus change bargaining positions.
Read 4 tweets
29 May
What really happened is threefold

1) New Keynesian macro totally failed post 08 and inflation hawks more so

2) 2016 made even mainstream Dems realize that there was a tradeoff to prioritizing inflation over jobs
3) most importantly the critique of econ as as much shaping as describing reality has been implicitly accepted as true. Econ isn't just providing a set of policy guide rails related to "the economy."
It itself articulates revealed preferences and shapes the behavior of the object it studies. So competition over theory is also over politics and that's in the open now.
Read 8 tweets

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