The Corner

Monetary Policy

Samuelson’s Fear

Robert Samuelson fears the Federal Reserve is going back to the 1970s:

What seems remarkable now is that many, possibly most, economists blessed this arrangement. Their argument was that just a little bit more inflation was a small price to pay for sustaining “full employment.” The trouble was that “just a little more inflation” was repeated countless times until it was a lot more inflation — and, as a practical matter, was out of control.

Two differences from the 1970s militate against his scenario. First, we now have market indicators, albeit imperfect ones, of inflation expectations. We didn’t back then. We’ll have more advance warning, then, if inflation is going to speed to a gallop.

Second, there is a much stronger consensus among economists now that loose monetary policy causes high inflation. In the 1970s the idea of “cost push” or “wage push” inflation was much more widespread. Theories that held that unions were setting off an inflationary spiral by pushing for raises were one example of this kind of theory.

The Fed is, if anything, continuing to move away from this thinking. The very change to Fed strategy that occasioned Samuelson’s column included the announcement that the Fed is no longer going to treat low unemployment as a signal of dangerous inflation to come. Not seeing tight labor markets as the cause of inflation is in itself an advance in keeping inflation under control.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.