<story><title>Paul Volcker has died</title><url>https://www.nytimes.com/2019/12/09/business/paul-a-volcker-dead.html</url></story><parent_chain><item><author>matthewdgreen</author><text>The alternative story I’ve heard is that “stagflation” happened to coincide with a massive surge in oil prices due to OPEC — which are an input to just about every product we use, hence increasing prices — and Volcker’s deflationary recession just happened to coincide with OPEC falling apart. But this alternative explanation seems so obviously different from the lesson in your post that it can’t be the full story, so I assume there’s some nuance.</text></item><item><author>SkyMarshal</author><text>Volcker taught the world how central banks should reconcile their multiple, sometimes conflicting mandates to effectively manage monetary policy.&lt;p&gt;When he became chairman of the US Federal Reserve in 1980, the US was suffering from stagflation, or stagnation + inflation, which economists previously believed was impossible to have at the same time.&lt;p&gt;The fear was that solving stagnation by lowering interest rates would drive higher inflation, possibly hyperinflation, but conversely that raising interest rates to solve inflation would exacerbate the stagnation, possibly into a depression.&lt;p&gt;Volcker showed that focusing on and killing inflation by raising interest rates, even to extreme levels (briefly up to ~20%), you end both inflation and stagnation.  For one reason, low, steady, predictable inflation, better enables businesses to plan, hire and invest.&lt;p&gt;And that has been central bank policy ever since (though they arguably mistakenly deviated from it under the latter part of Greenspan’s tenure).  As Bernanke said, “He personified the idea of doing something politically unpopular but economically necessary.”  It’s rare to have such an impact on one’s field, especially under such adverse circumstances.</text></item></parent_chain><comment><author>roenxi</author><text>This goes to a basic framing issue that crops up all the time in economics. [Situation] =&amp;gt; [Authorities Do Something] =&amp;gt; [New Situation] then everyone assumes that the authorities were primarily responsible for the change.&lt;p&gt;It seems like pretty intuitive logic but it doesn&amp;#x27;t make any sense on inspection; people adjust to changing economic circumstances much faster than the authorities can change things. The situation will change quickly even if the authorities do nothing. Lessons that get &amp;#x27;learned&amp;#x27; about crises and responding to them are probably a build-up of rain dances rather than actual knowledge.&lt;p&gt;It is a situation primed to promote economic witchcraft. Nobody agrees with which parts of are the most cargo-culty because political groups generally support the stupid ideas which happen to favour them.</text></comment>
<story><title>Paul Volcker has died</title><url>https://www.nytimes.com/2019/12/09/business/paul-a-volcker-dead.html</url></story><parent_chain><item><author>matthewdgreen</author><text>The alternative story I’ve heard is that “stagflation” happened to coincide with a massive surge in oil prices due to OPEC — which are an input to just about every product we use, hence increasing prices — and Volcker’s deflationary recession just happened to coincide with OPEC falling apart. But this alternative explanation seems so obviously different from the lesson in your post that it can’t be the full story, so I assume there’s some nuance.</text></item><item><author>SkyMarshal</author><text>Volcker taught the world how central banks should reconcile their multiple, sometimes conflicting mandates to effectively manage monetary policy.&lt;p&gt;When he became chairman of the US Federal Reserve in 1980, the US was suffering from stagflation, or stagnation + inflation, which economists previously believed was impossible to have at the same time.&lt;p&gt;The fear was that solving stagnation by lowering interest rates would drive higher inflation, possibly hyperinflation, but conversely that raising interest rates to solve inflation would exacerbate the stagnation, possibly into a depression.&lt;p&gt;Volcker showed that focusing on and killing inflation by raising interest rates, even to extreme levels (briefly up to ~20%), you end both inflation and stagnation.  For one reason, low, steady, predictable inflation, better enables businesses to plan, hire and invest.&lt;p&gt;And that has been central bank policy ever since (though they arguably mistakenly deviated from it under the latter part of Greenspan’s tenure).  As Bernanke said, “He personified the idea of doing something politically unpopular but economically necessary.”  It’s rare to have such an impact on one’s field, especially under such adverse circumstances.</text></item></parent_chain><comment><author>pdonis</author><text>The nuance, if you want to call it that, is that you can&amp;#x27;t do controlled experiments with the actual world economy, so we &lt;i&gt;don&amp;#x27;t know&lt;/i&gt; what caused stagflation or what caused it to end. We can&amp;#x27;t go back and re-run the experiment and do something different (don&amp;#x27;t raise interest rates, or keep OPEC from collapsing) to see if it changes the outcome.&lt;p&gt;It&amp;#x27;s notable that you use the word &amp;quot;story&amp;quot;: that is exactly the right word. These are stories we tell ourselves to try to make sense of what happened. But we should not mistake them for actual knowledge that would allow us to predict what will happen in the future. It isn&amp;#x27;t.</text></comment>