I think Mark Thoma nails this . What he describes is exactly the way I think about the issue but have been unable to articulate. To answer the question in the title of this post, it's useful to think of an island with only two goods. One of the goods is non-renewable, but highly desirable. The other good is less preferred, but it is renewable (thinking of renewable and non-renewable energy resources, for example). The key is to distinguish between changes in prices that reflect changes in the relative scarcity of the two goods, and changes driven by increases in the money supply. Over time, as the stock of the more desired good falls due to consumption, the price of this good will rise relative to the renewable good. Consumers will be hit by increases in the cost of living -- the same basket of the two goods purchased last year now costs more. But is this the kind of increase in prices the Fed should respond to? No, the price increase -- and the increase in the c
Dear Dr. Roberts,
ReplyDeleteIt seems we are turning something…I am not sure what…regardless…early 80s rock is the best.
Completely unrelated…
The USDA crop forecast was reduced today. The USDA corn-crop estimate was reduced by 4.1%, soybean harvest by 5.2%, and spring-wheat harvest by 5.2% below what it predicted in July.
Also found this news report from Southwest Farm Press on the harvest in Texas interesting…to quote the news report…(full version here: http://southwestfarmpress.com/grains/texas-corn-hard-hit-droughtheat)
Peter Hill, an agronomist with Pioneer Hi-Bred, says “it’s been a fascinating year for an agronomist to watch hybrid corn under stress.”
It’s been less fascinating for growers, he said during a field day stop at a TAWC demonstration project. The 2011 corn crop has grown under extreme drought and heat conditions, with more than 35 days reaching 100 degrees or more.
Hill says pollination has been affected, “regardless of water availability,” and that growers can expect to see a lot of lost kernels and less grain fill from the 2011 crop. “Kernels near the tip of the ear may be aborted. We had a very short period for grain fill.”
I still find it interesting the point about “regardless of water availability” comment.
Best regards,