Thread: Bernake's Successor: Yellen or Summers?

An Op-Ed. That "70s show" reference refers to inflation. I've heard from people like Jim Rogers that there would be higher inflation. There is inflation, but I wouldn't call it higher. Maybe Krugman is right? We shall see....

| 1/08/2014
Janet Yellen, A Hydraulic Keynesian, Will Deliver 'That '70s Show' Re-Runs
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“How Janet Yellen’s Agenda Could Transform Washington,” Michael Hirsh’s article in the December 14, 2013 issue of National Journal Magazine, was obviously intended to be a panegyrical puff piece, but what Hirsh actually said was nothing short of alarming. Here is the “money quote”:

“She is, more than previous Fed chiefs, an old-style “hydraulic Keynesian” who believes she can act as a control engineer over the economy, printing money to drive down unemployment.”

Oh great. Get ready for reruns of “That ‘70s Show” on The Inflation Channel.

The only way to reduce unemployment is to increase economic growth. The purpose of “printing money” is to make the dollar less valuable. Accordingly, anyone that believes that printing money will drive down unemployment must believe that dollar debasement will boost real GDP (RGDP) growth.

The old saying is true: “Every president gets the monetary policy that he wants.” Bill Clinton (and his Treasury Secretary, Robert Rubin) wanted a strong dollar, and he got one. George W. Bush wanted a weak dollar, and he got one.

So, let’s look at the relationship between “printing money” and economic growth.

There have been 12 post-war presidencies. During seven of them, totaling 40 years, the value of the dollar in terms of gold was either stable or rising (i.e., the price of gold in dollars was either stable or falling). During the other five presidencies, totaling 24 years, the value of the dollar in terms of gold fell significantly. Over the entire 64-year period, the dollar lost almost 98% of its value in terms of gold.

During the seven “dollar up” presidencies, the gold value of the dollar rose at an average annual rate* of 1.86%. During the five “dollar down” presidencies, the value of the dollar in terms of gold fell at an average annual rate of 16.86%.

During the years of the “dollar up” presidencies, annual RGDP growth averaged* 3.78%. During the “dollar down” presidencies, RGDP rose at only a 2.33% average annual rate.

The difference between these two RGDP growth rates is enormous.

Actual 2012 GDP was $16.2 trillion. If RGDP had grown at the “dollar up” rate of 3.78% for the entire 64-year period, 2012 GDP would have been $22.8 trillion, or more than 40% higher.

On the other hand, if America’s economy had grown at the “dollar down” rate of 2.33% the whole time, 2012 GDP would have been only $9.3 trillion, or nearly 43% lower than was actually achieved.

Actual 2012 per capita GDP was $51,700. In the “dollar up” case, it would have been $72,650. The GDP per capita result for the “dollar down” case would have been $29,500, which was the level of 1978.

Hirsh claimed that:

“Yellen is considered a non-ideologue who will relentlessly follow the facts, whether they lead her toward solutions on the left or the right.”

OK, Chairman Yellen, what about the fact that the data from the past 64 years shows that a stable dollar or rising dollar delivers a real economic growth rate that is more than 62% higher than that produced by a money-printing-driven falling dollar?

Hirsh notes that:

“Yellen is also the product of an old progressive tradition of activist, pro-government economics. Above all…she takes the nation’s worst problems, especially unemployment, as a deeply personal challenge.”

Uh, Madame Chairman, in your quest to meet this “deeply personal challenge” of yours, have you ever looked at the unemployment numbers for the past 64 years?

Under Bretton Woods, where the Fed’s “money printing” was constrained by a gold standard, America’s unemployment rate averaged* 4.71%, and dipped as low as 2.55%. Since August 1971, when President Nixon freed the Fed to start “…printing money to drive down unemployment,” our unemployment rate has averaged 6.45%.

Janet Yellen, A Hydraulic Keynesian, Will Deliver 'That '70s Show' Re-Runs - Forbes