Oddly enough, this morning’s New York Times carries an editorial by Paul Volcker (Federal Reserve Chairman 1979-1987). The message is basically “A little inflation is a dangerous thing” i.e. inflation is not an option for resolving structural economic issues. I believe wholeheartedly that Volcker is right, but….

His message is timed to remind the Federal Reserve’s Open Market Committee, which meets tomorrow and Wednesday to discuss further options for monetary policy easing, to maintain firm on price stability. Some committee members have indicated a willingness to tolerate price inflation in order to try to do more to reduce unemployment… although the last round of easing didn’t reduce unemloyment… Since recent data shows inflation running above the Fed’s preferred level in a cost-push spiral, Volcker’s editorial argues that the Fed should avoid further outright money printing.

Unfortunately, Volcker is not part of the policymaking apparatus, and I doubt whether those who currently wield power will appreciate his wisdom enough to follow his advice. Policy gimmicks are a lot more palatable to the banks than defaults and structural reforms. But time will tell!

I am a molecular biologist and I saw that you are a scientist as well. We need more science in things economic.

http://blog.i4sg.com/2010/01/09/labor-force-participation-rate-decline-expected-and-bad-news/

Back in January I pointed out that the workforce demographics would necessarily lead to both harsher recessions and weaker recoveries - and that policymakers should have anticipated this years ago! If we as a nation didn’t have our collective head in the sand (or a worse place!), we could have spent the last decade having a decent, public discussion of what to do about it, working up reasonable policy options, and figuring out politically tolerable solutions. Instead we get crisis after crisis and “hoocoodanode” reaction from policymakers. Shame on us!

If-when the Federal Government is forced to bring outlays in-line with revenues, Social Security and Medicare are necessarily going to be squeezed (in real terms at least), and the elders will face economic pressures to merge households in order to cut costs and preserve living standards. Alternatively, workers will face higher tax rates, and again face pressures to cut living expenses.

I’ve also noticed your point that the trend of women entering the workforce has reached its endpoint … unless we stop having children altogether, there’s no more workforce growth from that source. If-when the economy recovers, the choices for workforce growth apparently boil down to older workers, younger workers, or immigrant workers. (Or, if grandma and grandpa move in with their kids, the kids might work longer hours in exchange for grandma and grandpa doing the household chores and helping with the kids?) Right now the data are showing that the older workers are eating the younger workers’ lunch, in terms of unemployment rates.

I do, however, think that you may be so used to safe toys and safe food that you may not realize just how much damage was done to children and life expectancies back when there were fewer safeguards. And I personally get sick too often when I travel overseas to be willing to live in a country without food supply safeguards.

I’d be interested in more links to “real capitalists” willing to support reasonable levels of regulation and tort liability, as opposed to those entire industries, whom we hear too much about, who poison the water or defraud borrowers or build shabby products and then, instead of cleaning up their act across the industry (still a level playing field) lobby to change the laws to permit their egregious behavior.