Who fears inflation?

December 11, 1997|By Robert Reno

NEW YORK -- In one nightmare being widely peddled, a rolling tsunami of deflation, triggered in East Asia and already evidenced in the abrupt fall of gold and oil prices, could blindside the prospering American economy.

In another, a surge of inflation lurks barely under control as a tight U.S. job market and inevitable wage pressures threaten a price spiral that, in its worst telling, sounds like a badly filmed remake of the 1970s.

Either way, we're supposedly all in peril of being badly conflated, and you can take your pick of which way you want to get walloped. I'd go for the inflation scenario. I'm old enough to have covered economics in the 1970s to a point where listening to presidents and economists explain how inflation would soon be under control left me demented with cynicism. And I grew up listening to enough horror stories about the deflationary 1930s to cure me forever of being a conservative.

Better, I say, to take good news at face value. This is what the stock market did last week. When it was reported Friday that the unemployment rate had fallen to a 24-year low and job creation had boomed lustily in November, Standard & Poor's index of 500 stocks leaped to its first new high since the market fell out of bed seven weeks ago.

Normally, the market might have used this good news as an excuse to have a fit over fears that the Federal Reserve inflation hawks would be spooked into raising interest rates. But even the old biddies at the Fed are having a difficult time getting alarmed about inflation these days.

Even people as saturated with wisdom as the all-seers at the Fed have to admit when they are wrong. The consumer price index through October was running at an annual rate of only 1.8 percent. If it comes in this low for the entire year, 1997 will post the lowest inflation rate in 28 years.

Any economist would concede a 28-year low in the inflation rate concurrent with a 24-year low in the unemployment rate is something they'd kill to have chiseled on their tomb as the chief accomplishment of their careers. If only we knew who to give the Nobel prize to. We might award it to Alan Greenspan, except he's the one who told us repeatedly that this good fortune was impossible.

Oh, well, the one thing economic history teaches us is that there are as many self-correcting mechanisms in good times as there are in bad times. Neither lasts forever.

If there is anything for which to reproach ourselves in this unprecedented economic boom, it is not for its duration or strength but for the failure of policy-makers to see that its benefits were fairly spread among the tax brackets. The alternative is to argue that what's good for the rich is invariably best for everybody.

Robert Reno is a Newsday columnist.

Pub Date: 12/11/97

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