Saturday, February 2, 2008


Part of Barack Obama's appeal comes from the notion that he can bring people together. Last week he collected the endorsements of Hulk Hogan and former Federal Reserve chairman Paul Volcker. Both are known for laying down some smack in the 80's - Hogan on the Iron Sheik and Andre the Giant, and Volcker on inflation. The victory over inflation was not without its cost - Volcker's tight, quasi-monetarist policies led to the 1981-82 recession, the deepest US recession since the great depression.

Obama talks of working as a community organizer in the 1980's in south Chicago neighborhoods devastated by factory closings. The unemployment he saw is at least partly attributable to the Volcker Fed's actions.

The red line is the Fed Funds rate, the blue line is inflation (CPI) and the unemployment rate is in green.
It should be noted that the Fed's policies were a response to the inflation that had developed over the 1970's, and some economic "pain" was arguably necessary in those circumstances.

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