Globalisation, inflation & political choices
Expanding on a tweet, specifically this one:
(Because sometimes 140 characters isn’t enough – who knew?)
I think if I had to sum up my outlook for the Anglo-American bit of the North Atlantic economy, that’d be it.
It really all comes back to something I blogged about in a previous life at the BBC:
Was the “great moderation” in inflation of the 1990s & early 2000s a story primarily driven by “better policy” or “globalisation”?
Economists – who had more influence over central banks in the 1990s & 2000s than at any time previously – tend to go with the “better policy” answer. Fair enough. I won’t begrudge anyone talking their own book. We all do that.
But I’m not sure that’s entirely right.
As, the very smart Karthik Sankaran once put it…
I suspect the answer is both matter… but constraining the impact of the global output gap on your domestic economy has an impact. How big an impact? I don’t pretend to know.What I am fairly sure about is this: if political choices constrain your ability to import deflation… then inflation in the next 20 years will be higher than in the last 20.