Thursday, February 21, 2008

A Return to Macro-Economics

I entered the University of Chicago in 1988 intending to become a macroeconomist. I quickly transitioned to another field of study called applied micro. But, I always respected the Chicago Macro Stars. Starting today, I have a new favorite macro-economist. Forget my Chicago days of Lucas and Prescott, Charles Plosser is back. We were taught his real business cycle stuff and those Rochester hits are still somewhere in the back of my mind. Now that he is a voice of reason in Big Ben Bernanke's War Cabinet, I really like what he is saying. As a Los Angeles renter with some cash in the bank, I am a personal fan of higher interest rates. It looks to me that the Philadelphia Fed's President is going to slow down Keynesian Ben and help me out.

New York Times today

"Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia, echoed that view, saying in a speech that “we cannot be confident that a slow-growing economy in early 2008 will by itself reduce inflation.”

“As we learned from the experience of the 1970s,” Mr. Plosser added, “once the public loses confidence in the Fed’s commitment to price stability, it is very costly to the economy for the Fed to regain that confidence.”

In a telephone interview, Mr. Plosser explained that the Fed seemed to be making progress against inflation in the first half of 2007 but he started to become more worried during the second half.

“Since the summer almost all of the measures of inflation that we look at have begun to accelerate again, and in some cases pretty sharply,” Mr. Plosser said. “Perhaps the inflationary pressures are more broad-based than just energy.”"

So, I'm encouraged that the Fed may worry about its "stagflation" enough to slowdown the interest rate convergence to zero. This will help to achieve my goal of lowering home prices.

Given that this is supposed to be an environmental blog, I thought I would post this link --- it is pretty interesting stuff;
The Causes and Consequences of the Demand for Green Lawns

If we could get away from the social norm of everyone wanting a green lawn then we could save some natural resources. Where did this norm come from? How do we get rid of a "bad norm"? Where are the evolutionary theorists when we need one?