My partner James Alexander sent me something that gave me this idea…
And the “dead”, as you may have surmised, is Inflation!
As the chart depicting (from the Atlanta Fed Inflation Project) the flexible and sticky CPI YoY inflation makes very clear, inflation has been dead for at least a quarter century.
What the chart makes clear:
- An inflationary process, like during the “Great Inflation” of the 1970s, is characterized by increases in both the flexible and sticky components of the CPI (or any other price index)
- When you have price shocks like in the 00s, where between 2003 and 2008 oil shocks were prevalent, the flexible components “swing along” while the sticky components “stay put”. That´s the outcome when the Fed is successful in maintaining nominal stability (satisfactory NGDP growth along an adequate trend path).
- When, as in 2008, the Fed, suddenly fearful of price shocks that disturb the flexible components, engineers a massive demand shock (deep drop in NGDP) to quench “inflation”, the result is a long depression! Note that even the sticky prices are affected!
To justify their handsome remuneration, our sages at the Fed keep “talking-up” a problem that has long been dead. Much easier than worry about the (sometime barely) living!