DiabloWags said:
cbbass1 said:
Thanks, you're proving my point!
Which point was that?
The one where you said that the FED was going to engineer the economy into a Recession so that the GOP would sweep midterms?
Or that the Taylor Rule was an outdated formula from the 1960's - 1970's?
Sure. I stand corrected on the timing of the Taylor Rule. It was published in the early 1990s, as you said. My mistake on the quick Wikipedia scan.
However, my statement that "You're proving my point" was related to the graph that you posted previously, with a big spike in the
mentions of weak demand.
Wait a minute -- isn't the entire premise of Taylor's analysis that we can use monetary policy to reduce inflation by effectively
reducing demand?? If weak demand was already a concern in Q1 2022, as the chart suggests, then what's going to happen when interest rates go up?
I think the markets are answering that question for us.
If I'm correct, we'll see inflation go down a little, but supply shortages and corporate price gouging will continue. And the economy that required massive injections of $$$ from the Fed to stay afloat will crash & burn.
Taylor's analysis was developed using economic data that was before globalism & global supply chains, and before industry consolidation & monopolization.
During this period, businesses had two options for responding to increases in money supply, or demand:
- Increase Supply by producing more product or service;
- Raise prices
And during that period, enforcement of the Sherman Anti-Trust Act was vigorous, and there was
competition in nearly all markets, across the entire economy. The only viable option for companies to respond to increases in money supply or demand was to produce more product or service.
The option of simply raising prices in order to increase profits was not available; it would lead to lost sales & lost market share, because there was
competition.
So all of Taylor's analysis of inflation assumes that there's a competitive marketplace, where companies respond to increased demand by increasing their supply, if they can. [IMO, this is the genius of the balanced New Deal policies!]
In Taylor's analysis, the percentage of inflation that's due to price gouging is
zero, because it simply wasn't an option at the time.
Similarly, the percentage of inflation that's due to ongoing supply chain disruptions and supply shortages is also assumed to be zero.
Today's economy is completely different from the days of Taylor. The vigorous competition of the 1960s - 1980s has been replaced by consolidation and monopolization. In every industry, there are so few competitors that nearly all large corporations have pricing power. Even if there's no explicit collusion, there's a common understanding that it's in their interests to increase earnings by raising prices. In fact, if they
didn't raise prices to take advantage of the recognition, they would have to justify their
failure to maximize their earnings to their shareholders!
Just look at what CEOs are telling their shareholders at conference calls. It's all public information.
In addition, the supply shortages & disruptions of globalized supply chains that persist today were unheard of before 1992.
Taylor doesn't account for Covid-19, either. You think there's any chance that China's current Covid shutdown might have
anything to do with supply shortages?
How does Taylor respond to these realities that anyone can see? Or has anyone asked the question??
The Fed raising interest rates won't eliminate corporate price gouging, and it won't fix supply shortages. It'll just crash the economy. The only question for economic policymakers is, was it intentional? Or just incompetent?
