From: brownfield!jbrow (Jim Brownfield)
Subject: Re: Inflation and Carter?
Reply-To: <jbrow@glv.com>
Organization: Encompass
Date: Sat, 29 Aug 1992 03:08:04 GMT

In article <81401@bcsaic.boeing.com> rwojcik@atc.boeing.com (Richard  
Wojcik,snake) writes:
> In article 5778@brownfield.glv.com, wl$wl$ writes:
> >In article <81127@bcsaic.boeing.com> rwojcik@atc.boeing.com (Richard  
> >Wojcik,snake) writes:
> >... I wasn't writing a book on  
> >the Carter administration, I was refuting the common misconception that a  
> >rising commodity price increases inflation.
> 
> And I disagreed with you on the grounds that oil was not a typical commodity
> in our society.  You totally ignored my argument.  Didn't even acknowledge  
the
> point.

Your argument seemed to me to be that oil was not a typical commodity because  
it affected many other commodities.  Since it affects other commodities, it  
essentially could be referred to as a "group" of commodities (note the  
parenthetical reference below).  I apologize for not making this clearer, and I  
still stand by my statement that even oil cannot create inflation.

> 
> >I was not arguing that the oil cartel did not hurt our economy, but that is  
a  
> >much different thing than arguing that it caused inflation.  When more of  
your  
> >resources are dedicated to one commodity (or group of commodities), there  
will  
> >be less to dedicate to other enterprises, and your standard of living  
declines.  
> >I agree that the oil embargo hurt our standard of living, but it definitely  
did  
> >not *cause* inflation (except perhaps that it influenced politicians to  
> >pressure the fed into printing more money to *spur* the economy). 
> 
> Cause and effect.  Thank you, even if it was parenthesized.  The only  
disagree-
> ment left is over the legitimacy of my definition of "inflation", another  
point
> which you failed to acknowledge.  Most people think of inflation as a set of
> price rises that decrease purchasing power.  Your definition was couched in 
> terms of the money supply, but it amounts to the same thing.  You were  
splitting
> hairs.

I disagree.  You stated that, in effect, the OPEC oil cartel caused the price  
of oil to rise, and was the main factor in Carter era inflation.  The rise in  
oil prices could not cause a general rise in prices for consumer goods and  
services, only an increase in the money supply could do that (in a simple case,  
if the supply of money is fixed, and the total number of goods and services is  
fixed, how could the price of *everything* increase).

> 
> >Besides the fact that the money supply *did* increase dramatically in the  
> >Carter administration (maybe *your* memory is a little weak :-) ), when U.S.  
> >companies purchase foreign commodities,  they pay for them using American  
> >dollars...
> 
> In fact, the price of oil is pegged to the dollar, unless you've forgotten. 
> Inflation had the good effect of cheapening the cost of oil for the world in
> general.  It was a natural reaction to the price gouging.  America acted as
> something of a shock absorber.  But that brings me back to another point that
> I made, and which you ignored.  If everything was Carter's (and politicians  
of
> his ilk's) fault, then how come so many other countries suffered "inflation"
> (read "price rises leading to purchasing decreases") as well?  Was Carter's
> misguided monetary policy responsible for worldwide inflation?

Let me see if I have this straight...  OPEC restricted the supply of oil.  Oil  
prices rose.  This triggered inflation, which triggered oil prices to drop...   
Huh????

As another poster pointed out (sorry, I lost the reference -- oops), the United  
States does not control other countries' monitary policies.  Increasing the  
money supply (inflation) is a good way to take money from citizens' savins and  
devalue outstanding debt without even having to go to the trouble of taxing  
them.

> 
> >Again, I find it interesting that you accuse *others* of not remembering the  
> >Carter administration.  Certainly Carter did hurt our national image, and he  
> >blundered consistently in foreign policy issues, but the main reason for his  
> >defeat was the atrocious way he handled the economy in his early  
> >administration...
> 
> We just disagree on the character/economy issue.  I like your hyperbolic 
> "blundered consistently".  In fact, Carter had some major foreign policy 
> successes.  Perhaps his most notable was the Camp David Agreements.  But,  
hey,
> you *remember* that, right?  ;-)

Good point.  Maybe we *both* should take a memory course :-)  My problems,  
however, stem from the fact that I feel so old.  Maybe I'll go listen to some  
DEVO and reminisce about old times... :-)

> 
> >Stagflation just proved that the Keynesian premise of pumping money into the  
> >economy to give it a long term boost didn't work.
> 
> Jim, are you telling me that Carter was the first President to apply Keynsian
> economic theory?  Was John Kennedy a monetarist?  Really?  ;-)  I recently  
heard
> that an economist has called supply-side economics "warmed over Keynsian
> economics".  It certainly looks that way--spend more money while taking in  
less
> revenue.  Too bad Reagan didn't understand (or care about) economic cycles.  
> The idea is to use deficit spending to counter cyclic downturns, not just to
> use it all the time.

Absolutely not, Rick!  I even gave Carter credit for the really good things he  
did late in his administration.  And although Reagan talked a good line, he  
didn't do most of what he promised.  As a matter of fact, I left the  
Republicans and registered Libertarian the day after reading David Stockman's  
_The Triumph of Politics_.  I realized that Stockman's account matched my  
memory of the numbers coming out of Washington almost perfectly.  At the time,  
I blamed the problems on congress, but after reading Stockman's book, I could  
no longer hide from the truth about Reagan's nonexistent attempts to cut  
national spending.

>     Rick Wojcik   (rwojcik@atc.boeing.com)   Seattle, WA

Jim Brownfield
#include <standard/disclaimer.h>

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