Robert Samuelson, author of “Great Inflation and its Aftermath”, talks about how we got hyperinflation in 1970s, and how low low inflation since mid 1980s contributed to our longest economic boom and market boom. It’s a very good review of economic history.

Listen to this interview here.

I have two lines of thoughts:

1. Smart people don’t necessarily bring about smart economic policies, as mentioned by Bob in the interview. Keynesianism and big government spending dominated policy thinking in 1960s, and this was designed by a group of Nobel-winning economists. Today, we have similar situation. I hope smart people this time got it right.

2. Recently I was often wondering whether the Great Moderation is a good thing or not. It’s good because it brings down inflation expectations and gives us much needed price stability; it’s not so good because people since then had become so complacent about risk — everything was levered up: banks, consumer debt and housing market. And now comes the deepest and the longest recession since 1930s. Maybe, policy shouldn’t be so successful all at once and frequent small ‘fire’ is needed to keep people in alert.