Inflation redux

Jim Manzi does yeoman’s work in pointing out that the demand-deficiency model upon which the fiscal and financial authorities are relying has failed before:

I decided to go back through the now-public Fed minutes from the 1970s methodically to try to see the decision process they went through with the information available to them at the time that they had to make decisions. It didn’t take long to hit pay dirt. In the August 1970 Fed meeting discussion notes, you see this statement that is eerily similar to the CBO’s current report:

“Moreover, the upturn would be starting from a point where there is substantial underutilization of resources, as evidenced by a 5 percent unemployment rate and an operating rate in manufacturing at well under 80 per cent of capacity. In these circumstances, there is virtually no risk that economic recovery over the year ahead would add to the inflationary problem through the stimulation of excessive or even robust demand in product or labor markets.

Inflation turned out to be a huge problem, of course, but hindsight is 20/20. People weren’t stupid in 1970. We don’t have some “new science” of economics available to us now that they didn’t then; presumably those who were pretty arrogant about how we can’t repeat the mistakes of earlier policy-makers because we’re so much smarter now are a little more humble after the past 12 months.

So, “no risk” of inflation in 1970. How did that one work out for you, again, Keynesians?