The chart shows that monetary policy is crucial for macroeconomic stability. During “Keynesianism Rules” (a.k.a. “The Great Inflation”) a rising spending (NGDP) trend initially bolsters real growth (RGDP above trend) a fact that got the 1960s to be called “Golden Age”(!). Soon, most of the rising spending managed only to make inflation roar.
The “Volcker Transition” was a short period during which spending growth was reduced and stabilized along a stable growth path, giving rise to the “Great Moderation”.
The “GM” lasted through Greenspan´s ‘reign’ but ‘knowledgeable’ Bernanke may have thought that it was too ‘simplistic’. Better to be explicit about targeting inflation!
What he did get was a beautiful correlation between his nominal spending contraction and the fall in the real economy.
So, “workers unite”. It is in your best interest to get the Fed to target nominal spending along a ‘reasonable’ trend level. Happily it´s also in the “capitalist´s” best interest that the Fed does so!
that is such an awesome graph. thanks marcus!
Glad you liked it (are you in design?)
The last two posts are simply superb.
Pingback: Japanin keskuspankki ja rahan määrän kehitys – pelkkiä lukuja, olkaa hyvä « Tyhmyri's Blog
you are the king of graphs. awesome.
Pingback: “Workers unite”! It is in your best interest to get the Fed to target nominal spending along a ‘reasonable’ trend level. Happily it´s also in the “capitalist´s” best interest that the Fed does so! « Economics Info
Growth is the most important thing.
The best growth we had since WWII was in the “golden age”.
It is important to not be dismissive of that economic performance, because growth is the most important thing.
My response is here:
http://newarthurianeconomics.blogspot.com/2012/07/no-splashy.html