Greenspan Isn't the Only One Who Should Be Worried About Inflation
Nobody-not the financial markets, not the public, not the Bush administration and not Congress-is really worried about the current level of inflation, says economist Joel Popkin, because it still looks good in comparison with the late 1970s and early '80s.</br></br>"Back in the '60s and early '70s," says Popkin, whose consulting firm specializes in tracking inflation, "we used to worry about `creeping' inflation-inflation in the 5 to 6 percent range. Nixon put in price controls when inflation was just about where it is now." But ever since the second OPEC oil shock sent prices spiraling, "double-digit inflation has become the standard against which to measure." Anything less than that doesn't get us excited.</br></br>Popkin can point to plenty of supporting evidence: After a brief flurry of concern, the financial markets shrugged off the sharp jump in consumer prices-and an even sharper jump in producer prices-recorded in January; consumer confidence is running at a 20-year high (though purchases of autos and other interest-sensitive consumer durables have sagged a bit); and both the administration and Congress have registered less than enthusiasm for Chairman Greenspan's anti-inflation crusade.</br></br>That's too bad. If inflation is building up a head of steam, the only way to diffuse it short of a deep recession is for everyone to start checking their inflationary impulses. Businesses need to moderate price hikes and profit margins, workers must moderate wage and benefit demands and, most important, businesses, workers-and government-need to consume less and save more so that U.S. productive capacity can expand. But building inflation resistance requires strong leadership-which is not much in evidence outside the Fed.</br></br>"I am afraid you are sowing the seeds of a recession," Sen. Don Nickles (R-Okla.) told Greenspan at a Budget Committee hearing last week where the Fed chairman defended the credit-squeezing policies that have driven up short-term rates by 3 percentage points over the last several months.