This is funny, via Ezra Klein (who is also funny), but of course it misses the point. One big difference is that we use energy much more efficiently than we used to. Expensive oil needn’t crush us. The second big difference is that the Federal Reserve is far more competent today than in the 1970s. That is true even if you are not a Ben Bernanke fan. The third big difference is that a negative shock or financial collapse from China could crush us today, but not in 1971. Whoops, forget that third difference.
However efficiently we are using energy, the lion’s share that we use is fossil fuel, and we are using much more fossil fuel every year.
You can check it out in the IPCC Report on in the International Energy Outlook, which was just released. Readers can download the Exec Summary gratis
http://www.iea.org/w/bookshop/add.aspx?id=319
Actually, the comparison with 1971′s inflation isn’t oil, but corn. Ethanol subsidies and growing demand are hitting us in a place we’re far more sensitive to than the price of oil–namely every other crop for which corn can be substituted.
It’s different this time because now we merely import everything from countries that are energy-inefficient, instead of producing energy-inefficiently.
The 30 year treasury rate is only 4.28%. The Fed doesn’t control that interest rate at all. It’s all inflation expectation.
Which means not the current inflation but what the Fed is likely to do about current inflation, namely stop it.
They may have to get past the election first.
Core inflation just filters away stuff that shouldn’t trigger monetary changes. The economy doesn’t need less or more money as the price of oil goes up and down. Substitution happens in response.
If the price of oil rises because all prices are rising, then that’s a monetary matter, and will be caught by the remaining core inflation index.
Rich Berger,
We were not financially intertwined with China in 1971.
If a Chinese economic collapse throws us into a depression I’m going to be very cross with those doctrinaire free trade economists.
Heh. I guess I look at food prices and think “who am I going to believe, the long-term treasuries or my lyin’ eyes?”
I did put away a receipt from Trader Joe’s a few years ago. My thought at the time was that inflation was more personal that the indexes might imply, and that I was enjoying better than indexed inflation. I’ll have to dig it out.
FWIW though, the things that catch my eye (at Smart and Final) are the carton of rolled oats that used to vary between $1.79 and $2.25 … now $3.49, and the 25# sack of wheat flour that used to be $4.75 to $5.25 … now $7.99
That recent NY Times article on biofuels and energy said:
“The food price index of the Food and Agriculture Organization of the United Nations, based on export prices for 60 internationally traded foodstuffs, climbed 37 percent last year. That was on top of a 14 percent increase in 2006, and the trend has accelerated this winter.”
Is there an argument that we are insulated from that “internationally traded” increase? Or perhaps do “manufactured foods” lag the raw inputs?
That is interesting Jmo, and yes certainly food is not all of inflation, or in the US even a significant fraction of our spending.
But amusingly, you may have bought in 1998 near the peak
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