Deflation: John Cochrane defiantly takes on economic history

Recent Economic History

Okay, let’s look at the United States, 1982-2007. That’s a 25-year stretch, and recent too. In 1982 the U.S. GDP was $5,865.9 billion. It rose to 13,206.4 billion in 2007 (both figures in 2005 dollars).

That is a real increase of 125.1%, or an annual compounded rate of 3.3% real, for 25 years running, with all the imperfections and structural impediments that the U.S. economy has.

In the real world, the U.S. economy performed well 1982-2007. That is not debatable.

The rate of inflation? In the 25-year period prices rose 114.8%, so the inflation rate was about 3% a year. Except for 1982, inflation was always below 6% and, and only twice below 2% in the 25 years. In other words, moderate inflation in the 2% to 4% range was the norm. It worked.

For most of that period of prosperity, moderate inflation was accepted across the political spectrum. And why not?

About the Author

Marcus Nunes
João Marcus Marinho Nunes is a partner of Phynance Estratégias Quantitativas e Investimentos and a professor of Economics at Fundação Getúlio Vargas in São Paulo, Brazil. He also blogs here:

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