I somewhat take exception to a comment[1] I received at The Malaysian Insider. I just want to refute the live in a dream world, wet behind the ears and textbook accusation. Here, I just want to show how “textbook” the idea I conveyed really is:
Various factors might account for these changes in the Phillips curve, but, as Mishkin pointed out, better-anchored inflation expectations–themselves, of course, the product of monetary policies that brought inflation down and have kept it relatively stable–certainly play some role. If people set prices and wages with reference to the rate of inflation they expect in the long run and if inflation expectations respond less than previously to variations in economic activity, then inflation itself will become relatively more insensitive to the level of activity–that is, the conventional Phillips curve will be flatter. [Inflation Expectations and Inflation Forecasting. Ben S. Bernanke. July 10 2007]
I stress, “if people set prices and wages with reference to the rate of inflation they expect in the long run and if inflation expectations respond less than previously to variations in economic activity, then inflation itself will become relatively more insensitive to the level of activity”
What author of that comment failed to realize is the idea of the neutrality of money in the long run but I suppose when one live down in the mud, it is hard to see the general trend.
Sometimes, we need to fly 20,000 feet above the ground to make sense of the bigger picture and I take comfort in that.
[1] Reproduced for reference:
Agreed with the last 2 comments. you have only touched on the surfaces of the problem and live in a dream world…and still wet behind the ears too.
“..an escalator clause is a must if preservation of real wages is a goal” this is a great line but who gets this but CEO’s. The average joe on the street don’t even have a contract and the average joe is the one who is going to be doing the rioting and some politician is going to ride on this ticket and he will be in power after the next election only to find that he is NOT able to stop the problem…. you know the rest, its been happening around you. Your economic books may be great but this is the real world. [July 23 2008]
