Do you remember 1973?

I do. I remember the rate of inflation rising dramatically. I recall people offering these explanations:

1. A Soviet crop failure that caused global wheat prices to soar.
2. A war in the Middle East that caused a global oil price shock.
3. Too much fiscal stimulus during the previous year.

None of these were the actual cause of high inflation. The real problem was nominal—easy money. Nominal GDP shot up at a rate of 11.4% in 1973. While real GDP also grew at a relatively fast pace, high inflation is almost inevitable in a year with 11.4% NGDP growth.

BTW, we don’t yet have NGDP growth data for 2022, but the most recent 4 quarter growth rate is 11.8%.  

I’m certainly not predicting 1970s-style inflation for the 2020s, but the Fed needs to get its act in gear.  Saying, “it’s just supply shocks” doesn’t address the excessive NGDP growth.

PS.  The Datsun in the picture above brings back memories.  I recall that almost everyone in America thought the company’s executives were nuts when Nissan changed the name of their US exports to that of the parent company.  I still think that.  Datsun sounds way better to an English ear.

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