Charles Plosser’s Other Big Historical Revisions

A Benjamin Cole post

It was so obvious, it nearly escaped me.

In his lugubrious swan-song interview with The New York Times, departing FOMC board member and Philly Fed President Charles Plosser unloaded so many half-truths and possibly intentional misinterpretations that some real historical lu-lu’s skated through unscathed, certainly by the interviewer.

Another Plosser whopper: That monetary stimulus and consequent growth and higher inflation would generate stronger economy and more jobs was a view “clearly and historically challenged rather significantly in the ’70s, and it failed.” Plosser probably thought he could get away with this dissembling as the public, and even macroeconomists, often remember the 1970s as “stagflation.”

But read this fact: Total non-agricultural employment in the United States rose from 71.0 million in 1970 to 90.5 million in 1980—an increase of 27.5%, despite a bad recession mid-decade.

And how does job creation in the 1970s compare to the nine low-inflation Plosser Years at the Fed?

With Plosser voting on the FOMC, nonfarm employment rose about 2.3% in the United States. Well, he was only there for nine years, and not 10.

Repeat: 27.5% U.S. employment growth in the 1970s, vs. 2.3% in the nine Plosser Years.

1970s GDP vs. Plosser Years

In fact, there were some periods of the 1970s that would be considered “red hot” by today’s milquetoast standards. For example, from 1976 through 1979, the real U.S. GDP expanded by a cumulative 20%–a rip-roaring monetarily-induced recovery from the 1973-1975 recession.

For the record, from 1970 to 1980, real U.S. GDP expanded by 38.1%.

The nine Plosser Years? The U.S. real GDP expanded by 10.9%.

1970’s real GDP growth: 38.1%. Plosser Years: 10.9%.

Yet, Plosser says the 1970s and the 2006-2015 period validate his way of thinking!

Give me disco over rap.

Conclusion

If Plosser wants to say U.S. inflation was “too high” in the 1970s, that would be one thing.

Perhaps it was—it was an inflation-prone economy, and Fed Chairman Arthur Burns was operating in war-time, and when the U.S. faced a bona fide military adversary, the Soviet Union. Burns pursued growth, and largely obtained that. The price was low double-digit inflation

What did Plosser pursue, and what did he obtain? And what was the price? And does Plosser really believe what he is saying?

2 thoughts on “Charles Plosser’s Other Big Historical Revisions

  1. The seventies were a time of positive growth and I am so glad you keep bringing this to everyone’s attention. However, the fact that the economy was expanding, meant finance of all kinds could also quickly expand, and the combination led to inflation. In order for financial concerns to hide their contributing factor, they found it all too convenient to pretend that monetary representation was unimportant, because a focus on money would diminish their role in the economy. This reasoning on Plosser’s part is too reminiscent of the arguments in Minsky’s “Stabilizing an Unstable Economy”, and the scary thing is that more Keynesians are now drifting closer to a Post Keynesian rationale.

  2. Becky–Thanks for reading and your comment.

    Yes, I too concede inflation too high in the 1970s, and Burns overdid it.

    But for Plosser to say the inflation of the 1970s proved that monetary stimulus “failed”—especially in comparison to Plosser’s simply dreadful years at the FOMC—is galling, to say the least.

    I could write several more posts about Plosser, but I have to move on in life. It would be nice if Plosser had said something like, “There was almost no employment growth in the nine years I was at the Fed. No one can call that a success, and I do not.” I do not expect mea culpas, but how about some reality?

    Instead, he manufactures fairy tales.

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