This is a continuation of the analysis of each significant period of rising inflation since 1914. The first part1 covered the years up to the start of World War II. In this post, we cover the inflationary periods following World War II through 2022.
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After failing to find systematic relationships between consumer inflation and federal deficit spending, this is the start of looking at each period of significant inflation and disinflation individually.
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Previous work has shown that the correlation between US federal government deficit spending and CPI inflation fluctuates widely and wildly over time. Results vary depending on data sample selection. That leads to the present decision to look specifically at each instance of inflation, disinflation, and deflation.
This week we examine take a deep dive into what can be learned from examining the unsmoothed data for correlation of deficit spending and CPI inflation. As before, we are looking at the years 2014-2022.
Credit: From a photo by Carlos Muza on Unsplash.1
Note: This was posted at 4:24 pm on March 26 with some incomplete sections. Updating in was completed at 2:52 am March 28.
In previous parts of this discussion, we have made some qualitative observations about relationships involving the correlations between U.S. federal government spending and inflation in the U.S. economy. For the first time in this series, we will move into the arena of quantitative measurements of government spending and inflation correlations.
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“Inflation is always and everywhere a monetary phenomenon.”
. – – Milton Friedman1
Nobel laureate Milton Friedman is considered to be the father of monetarism. This macroeconomic theory enjoyed popularity in the late 20th century but has come under increased criticism in the 21st century. Monetary theory is deeply linked to arguments about the causes of inflation. As shown here, there is little data to support Friedman’s theory that government spending generally causes inflation. The issue is not as simple as he made it seem.
Milton Friedman, age 77, 1989. Credit: Encyclopedia Britannica.
