Inflation Nation: Article Summary

The article “Inflation Nation” was written Allan H. Meltzer Professor of political economy at Carnegie Mellon University. This article compares and contrasts the current economic policies of the Federal Reserve under the Obama administration with the Paul Volker Federal Reserve of the 1970's. The major differences are the current administrations large budget deficits which will constrain the Feds’ open market activities and also the decreasing independence of the current federal reserve.

Mr. Meltzer is concerned that there is an increasing danger for inflation given the policies of the current administration. The inflation fears turned to reality in the 1970’s and that is when the Volker Federal Reserve allowed interest rates to increase despite the high levels of unemployment. Mr. Volker was admired for this determination to make the tough decision to let the interest rates rise that would undoubtedly create higher unemployment in the short run, but decrease high inflation that would hurt productivity growth in the long run. Given that Volker is a close advisor to Obama, him and “many economic advisors are fully aware of the inflationary dangers ahead”. The dangers according to Meltzer is not the technical knowledge of Obamas' economic advisors, but that under Bernanke, the Fed has become less independent than the Volker Fed was and that will hurt their conviction to make the tough decision which will come once the price levels begin to rise.