The Times had an article examining the prospects of the Fed being able to successfully bring down the inflation rate, without also inducing a recession. While it is a thoughtful piece, the two experts whose views dominate the article, Robert Gordon and Lawrence Meyer, have the distinction of having been proven completely wrong on this topic by the events of the nineties. Both were prominent inflation hawks in the mid/late nineties, arguing that low unemployment would trigger an outbreak of accelerating inflation. In fact, Meyer, who was a Fed governor at the time, led an unsuccessful campaign to force Greenspan to raise interest rates to slow the economy and raise the unemployment rate. Of course, the unemployment rate continued to fall through the late nineties, and there was no noticeable uptick in the inflation rate for most of the decade. This failure doesn�t mean that Gordon and Meyer�s views should be ignored, both have done extensive research on this topic. But, given the track record, perhaps a bit more skepticism is warranted, and more space should have been given to the views of economists who were right about the events of the nineties (a very small group). One other item about this story: a serious analysis would have included a discussion of how the prospect of a collapsing housing bubble could complicate the picture.
-- Dean Baker