The Collapse of Nominal Expectations

A blog about business and economics.
April 24 2013 1:16 PM

The Collapse of Nominal Expectations

nominal

Great chart from David Beckworth reproduced above illustrating what he calls the Federal Reserve's dereliction of duty. Without blaming anyone for anything, let's just say that for a long time nominal income growth expectations hovered around 5 percent and then suddenly they didn't.

It's conceivable that the entire thing can be accounted for as a result of a cascading series of negative supply shocks, but even if so it's an affirmative policy choice to express those price shocks as sharply reduced output in the context of low and stable inflation rather than rising prices in the context of stable output. Long story short, people thrown out of work against their will and into a situation in which a nine-month spell of joblessness rapidly becomes a life sentence to unemployability.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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