Daily Archives: February 26, 2017

Warren Mosler Explains the Inflation of the 1970s

Mosler Economics has an article explaining the inflation of the 1970s in the article My story of the Thatcher era.

So back to the 70’s, and continuous oil price hikes by a foreign monopolist. All nations experienced pretty much the same inflation.

The point being that inflation was caused by the sudden increase in the cost of oil imposed by OPEC. It was not caused by the government creating too much money. (This leaves out the inflationary pressure of guns and butter policy of LBJ which was a case of the government creating more money than the economy could produce things to buy with that money. In fact this inflation may be what drove OPEC to the drastic action that they took. Of course, it didn’t help that we sent 500,000 people to fight a war in Vietnam when they could have been at home producing goods for the civilian economy. Also much of the goods that our economy was producing were being blown up in Vietnam.)

At the time of the inflation I thought that the “solution” would have been to raise taxes on gasoline. That would have forced the transition to fuel economy much faster and might have concentrated the inflation in the energy sector and away from general inflation. Others were saying that petroleum products were already too expensive and we didn’t need to make the situation worse.

Mosler does not address my “solution” to the problem.

By the way, the price of oil didn’t just happen to drop. Reagan threw us into a near depression, and that’s what suddenly cut the demand for OPEC petroleum. I think my way of cutting demand for OPEC’s product would have been less painful.

Thanks to Kristjan Andre for the link to this article. I requested such a link because I had never heard a leading light of the Modern Monetary Theory crowd address the inflation of the 1970s in any depth. This story is exactly what I wanted to hear from one of those leading lights such as Warren Mosler. I didn’t want MMT proponents to keep saying that WW II was the last time we faced inflationary pressures.

Wolf Richter: How Much Money Laundering is Going On in the Housing Market? A Lot

Naked Capitalism has the article Wolf Richter: How Much Money Laundering is Going On in the Housing Market? A Lot.

The US housing market has been a perfect platform to launder large amounts of money, no questions asked. Brokers, banks, and other industry professionals played along. There were no reporting requirements. Everyone in the world knew it. And they came to launder their cash by buying expensive homes.

I hadn’t thought about this activity until reading about it in this article. It is valuable information because it may give a hint at a bubble that is about to burst. As a participant in the economy, it is always nice to know when it may be wise to take cover.

As an aside, this may explain why 45 thought this was an opportune moment to get out of the luxury housing market and take a safe job as President of the United States.

I am going to file this under Greenberg’s Law of Counterproductive Behavior.

If you see a behavior that seems to you to be counterproductive, perhaps you have misunderstood what that behavior is meant to produce.

In case you wondered why there were people who were willing to pay exorbitant (and seemingly counter-productive) prices for luxury homes, now you know what they were trying to produce. They were paying to get their money laundered.