Is Christina Romer Putting Words in Critics Mouths?

Posted: February 28, 2011 by socklessjoe in Fucking Markets, Op/Sped, Stupid Question Time

I ask that as a semi-serious question.  I believe the answer is “yes”, but need the expert advice of the Moron Nation.

Romer sets up the inflation argument as the noble “empiricists” against the damn dirty “theorists”.

Throughout Romer’s piece, she keeps referring to the relationship between inflation and unemployment.  Though she does not mention it explicitly, she seems to be referring to the Phillips curve, which I thought had been pretty –you know– empirically debunked by the observation of stagflation in the 1970s.

Now, most days I’m more of a monetarist than an Austrian, and don’t see Weimar style inflation as necessarily baked into the cake.  (As of January the M3 was still shrinking.) But  I’m not so stupid as to think that no amount of monetary promiscuity could not cause inflation so long as unemployment is high.

Romer:

For theorists, any rise in an indicator of expected or future inflation, like the recent boom in commodity prices, suggests that the Fed’s credibility is at risk. They fear that general inflation could re-emerge quickly, despite high unemployment.

[…]

The fight over quantitative easing is about the costs. The empiricists say the policy won’t cause inflation because the economy remains so weak. The theorists argue that a small gain in growth could come at the price of a rapid rise in inflation.

Are all the “theorists” really arguing this?  I never got the impression that the “theorists” were keen on the wage-inflation idea.  I think they are arguing that a shit-pile of funny money will cause inflation, and without necessarily helping employment.

My general impression of the Romer piece is that she has made two serious errors, (1) setting up a straw man, and (2) relying on the highly questionable relationship between employment and inflation.

Comments
  1. Mark E says:

    Since the regime has cooked the books on:
    Unemployment
    Redefining ‘base’ employment
    Selectively counting full vs. part time
    Not counting people who can’t find work
    Inflation
    Excluding food
    Excluding fuel
    Stimulus Spending (“Created or Saved”)

    Why do you believe the regime’s M3 value?

  2. socklessjoe says:

    actually that’s a private calculation of m3. The Fed stopped publishing m3 years ago.

  3. Veeshir says:

    Can you put words into the mouths of people you’ve never met?
    She seems to be allowing one side to argue for both sides.

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