Yes and no. Issues are more complex than can be summed up in one little article, and Hoenig was not as right as the author makes him out to be.
The USA did not have hyperinflation. That’s the term when prices go up daily or hourly, when (as the joke goes) it’s cheaper to take a taxi than the bus because the taxi ride you don’t pay until the end when the money’s worth less. Assorted countries have had that problem - Zimbabwe, Nicaragua, Argentina, Russia. Nevertheless, the western world at the time did have a major adjustment to do when the base price of oil went from $1 a barrel to $10 a barrel overnight thanks to OPEC upset over the US support of Israel in the 1973 war. Inflation in the USA was more along the lines of “this costs 10% more than it did 6 month ago or a year ago.” The result was a minor feeding frenzy, “buy it now before the price goes up and pay it off more easily when your wages increase”. The extra demand simply fueled inflation more.
that price jump rippled through the economy, and it seemed that countries were locked in a cycle of - price increase, wage increase, price increase, wage increase… Everything depended on oil. Each item’s price adjustment triggered a wave of follow-on price increases. manufacturing cost more, trucking cost more, electricity cost more. The solution was eventually to raise interest rates so high that people/companies stopped spending and the economy cooled off.
the article screams about how much money the government has printed in the last few decades, without considering that really the past numbers need to be adjusted for inflation and the size of the economy. Plus, some of the measures taken were absolutely necessary - without stimulus, the economy would have crashed even harder. Some politicians were against aid to prevent giant industries like the automakers from crashing; these manufacturers did nothing wrong, but thanks to banks that through fraud and stupidity crashed the banking system, the economic engine froze nobody would be able to buy cars. Basically no bank trusted that any other could pay their bills, no bank trusted that the guy wanting a car loan would have a job in a few months, etc. Saying “no” to government aid was exactly the wrong idea.
Same with COVID - without some government intervention, everything from airlines, hotels and restaurants to hospitals and any factory needing workers would be bankrupt or in dire straits. Stimulus was called for. “Let them eat cake” indifference was not the solution.
the inflation we find ourselves in today is not the same as 1975. Then, a very basic commodity suddenly became much higher priced, with ripple effects. Today’s inflation is a side effect of world-wide factory and supply chain disruptions causing shortages. As these disruptions ease off (we hope they will soon) the shortages will become less and prices will return to normal. (I’ve seen, for example, the price of the same package of bacon bounce between $19 and $25 up and down a few times in the last months, depending on availability.) Commodities like oil are the least disrupted by COVID. The only other issue I see is the disruption of commodities like food due to concurrent climate change issues.
One can argue too that the biggest problem is the US political system. Perhaps it’s not necessary to go back to the days when millionaires paid a marginal tax rate of 70% or higher, but the US consistently spends about $1.25 for each $1.00 it takes in. As the saying goes - “if thing can’t keep going on like this… they won’t.”
But Hoenig does have a point. Each successive crisis over the last few decades has driven down the interest rate and the central banks have had a hard time getting the rate back up. High prices for everything, baked into the system - are a result of low rates. people can afford more expensive houses, cars, and other items because they can afford bigger loans with interest being low. Any attempt to return to reasonable rates will trigger a round of adjustments that will be as painful as the 1980 adjustments - foreclosures, economic slowdown, etc. Also, with interest being so low, today people look for alternative ways to put their money to work - which is what the whole subprime scam was about, bonds that were allegedly safe and paid absurdly high rates of return. Much of that money now goes into the stock market, turning it into a casino gambling on what will pay off - also a game the rich can play far better than the average Joe. Decades ago, people bought reliable stocks for their dividends. Today, it’s all about capital gains.
Sooner or later interest rates will have to return to a realistic level. For my vaguest recollection, the 50’s and 60’s were relatively stable with about 4% general rates of return.
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