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There We Go Again

June 21st, 2011 - 8:16 am

Talk about a misleading headline…

To Avoid Double-Dip Recession, Remember Lessons of 1980s: Echoes

That sits atop the latest Amity Shlaes column for Bloomberg, in which she argues that a double-dip might be quite necessary to choke off inflation. Key bit:

Volcker used his monetarist cover to tighten violently. Between summer 1979 and December 1980, the prime rate rose to 21.5 percent from 12 percent.

Why so high? To wring extra money out of the economy, certainly, but also to prove the Fed meant what it said. Volcker incurred the wrath of many. Homebuilders sent the Fed two-by-fours to symbolize the houses they were not building; car dealers sent in keys to unsold vehicles. “We were negotiating for a house when Mr. Volcker came along and knocked the struts from under us,” a husband told the New York Times in 1980.

In the second dip, which officially began in summer 1981 and ended late in 1982, unemployment rose past 10 percent. “That recession resulted from the absolute necessity to kill inflation,” George Melloan told me.

Mile-high interest rates and a double-dip recession would not have been necessary in the early ’80s had it not been for the economic madness imposed by Washington in the ’60s and ’70s. By the time Nixon declared “I am now a Keynesian is economics,” our next few years of economic misery were set in stone. And the double-dip wouldn’t be increasingly likely today, were it not for the economic madness of the last decade — and most especially of the last three years.

At this point we probably desperately need Volcker’s recipe — and the resulting double-dip — to get out of this prolonged slump and increasing inflation. The problem is, today we have a Fed which thinks the problem is not enough inflation. And the longer we put it off (immediately might not be soon enough) the higher rates will have to go and the worse the second dip will be.

Honestly, I don’t know why anyone in the GOP is running for President. Because assuming Obama loses, the mess they’ll “inherit” will be far worse than the situation Obama faced in 2009.

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