I find it rather odd to debate what caused the Great Inflation. The answer is clearly loose monetary policy? People understood this at the time and for a long time afterwards – which absolutely helped pave the wave for Fed independence. The more interesting question is why was monetary policy so loose...
I'm not sure I understand your point #2. Are you arguing that the Great Inflation was caused by the gold peg change in 1968? Or that the Great Inflation caused the gold peg to change?
It’s really not fair or accurate to say, as Tabarrok did, that people were proud to abandon balanced budgets... Here’s LBJ in 1968:
"One way or the other we will be taxed. We can choose to accept the arbitrary and capricious tax levied by inflation, and high interest rates, and the likelihood of a deteriorating balance of payments, and the threat of an economic bust at the end of the boom.
Or, we can choose the path of responsibility. We can adopt a reasoned and moderate approach to our fiscal needs. We can apportion the fiscal burden equitably and rationally through the tax measures I am proposing."
Unfortunately, people chose inflation and (eventual) high interest rates rather than higher taxes!
I also don’t quite understand Tabarrok’s point about gold stability. Volatility increased by going off the gold standard? Well, yeah, obviously? If the price of gold is fixed, it won’t be volatile…
Alex was referring to the real or relative price of gold, which also became much more volatile. Unlike the nominal price, that increased real instability was not "obvious". The real exchange rate also became more volatile, another non-obvious result.
On the gold price peg abandonment, I'm saying it was a necessary condition. "Causation" is a very fuzzy term. Thus it would be weird to say "putting a bullet in the chamber caused the murder", so I get your point.
Money grew at less than a 2 percent rate in the decade ending in 1964. In the nine subsequent years money supply grew at a rate in excess of 6.5 percent...
The problems stemmed from using the wrong criteria (interest rates, rather than member bank legal reserves) in formulating & executing monetary policy. Net changes in Reserve Bank credit (since the Accord) were determined by the policy actions of the Federal Reserve. But William McChesney Martin, Jr. changed from using a “net free” or “net borrowed” reserve approach to the Federal Funds "Bracket Racket" c. 1965. Note: the Continental Illinois bank bailout provides a spectacular example of this practice.
The effect of tying open market policy to a fed funds bracket was to supply additional (& excessive) legal reserves to the banking system when loan demand increased. Since the member banks had no excess reserves of significance, the banks had to acquire additional reserves to support the expansion of deposits, resulting from their loan expansion. If they used the Fed Funds bracket (which was typical), the rate was bid up & the Fed responded by putting though buy orders, reserves were increased, & soon a multiple volume of money was created on the basis of any given increase in legal reserves.
This combined with the rapidly increasing transaction velocity of demand deposits resulted in a further upward pressure on prices. This is the process by which the Fed financed the rampant real-estate speculation that characterized the 70's, et. al.
Thanks for pointing this out. I do wonder why the oil shock(s) are not mentioned. I lived through that period of time and remember at one point that there were odd and even days that you could gas up depending on the last digit of your license plate. Oil is feedstock for a great many items and the dramatic price increase rippled through society. Volker's crushing of inflation benefited those of us who had no debt and put all our money in high yield insured savings accounts. It was an interesting time to be sure.
The basic problem was fast NGDP growth, not oil. Between 1971 and 1981 NGDP rose at an 11% rate, and prices rose 8%/year. That result is very close to what would have occurred with no oil shocks.
But what caused N-gNp to grow so fast? The problem was that the trading desk's operating procedure gave the bankers the wherewithal to obtain legal reserves whenever they expanded their loans-deposits. The pressure was always on top of the Fed Funds target because of the monetization of time deposits.
The catastrophic increase in the transaction's velocity of demand deposits, the transition from hand-held clerical processing to electronic processing, the regulatory removal of gated deposits, etc., also bolstered AD.
Velocity plateaued with the time bomb of 1981, with N-gNp hitting 19.2%, because of the widespread introduction of ATS and NOW accounts.
The Great Inflation began in 1965, the first oil shock was 1973. The photos of people lining up for gas are memorable, as are the memories of gas rationing that people remember, but inflation had already been out of control for years.
Given some downwardly sticky prices, the Fed HAD to crank up inflation to let relative prices to adjust, but it over did it, as in 2021 but in a much bigger way.
And those gas lines were just Nixon's price control on gasoline.
Having not watched the debate, was cost push inflation even mentioned? It seems completely foolish to disregard the extreme increases in production and transaction costs for basically everything in the entire economy while only focussing on the actions of the Fed.
When oil, which at the time made up a large share of energy consumption, and an overwhelming majority of mobile energy production triples in price overnight, many businesses that were viable yesterday, won't/can't be viable today. Everything from your taxi trip (taxis need gasoline) to eggs in the supermarket (which need to be trucked in, and kept cool using energy intensive freezers) are going to face increased production costs.
The Fed definitely has some room to maneuver the economy, rightly and especially wrongly, but it isn't an omnipotent force that if we *just* get right, the economy will grow consistently and never experience inflation despite the underlying economic realities. If the United States decided to institute a 200% carbon tax overnight, no amount of stimulus or lowering rates is going to equate to an equally prosperous economy for many, many years. The same was true in the 70s, so only analyzing fiscal and monetary policy is going to miss the mark as far as a "good" explanation.
It turns out that energy shocks primarily affect relative prices, not the overall price level. Higher oil prices tend to raise the price of gasoline and reduce the price of cars. But car prices increased sharply in the 1970s! That's because an easy money policy caused NGDP to rise at 11% (1971-81) while RGDP was rising at barely over 3%. Nominal wages soared, so did the cost of producing cars. Inflation in the 1970s was primarily caused by excessive growth in aggregate demand, not supply shocks. Energy problems caused the price of oil to rise relative to the price of other goods, but I'm interested in the overall price level.
See Joseph Wang: "The earliest form of the velocity of money was formulated to show a relationship between the quantity of money and the value of all transactions. This is very different from the current formulation, which draws a relationship between the quantity of money and GDP, which is the income of a country. "
Remember that in 1978 (when Vt rose, but Vi fell) all economist’s forecasts for inflation were drastically wrong. Put into perspective: There were 27 price forecasts by individuals & 9 by econometric models for the year 1978 (Business Week). The lowest (Gary Schilling, White Weld), the highest, (Freund, NY, Stock Exch) & (Sprinkel, Harris Trust & Sav.).
The range CPI, 4.9 – 6.5 percent. For the Econometric models, low (Wharton, U. of Penn) 5.7%; high, 6.6% U. of Ga.). For 1978 inflation based upon the CPI figure was 9.018% [and Leland Prichard, in his Money and Banking class, predicted 9%].
See: G.6 Debits and Deposit Turnover at Commercial Banks
Does inflation reduce the real gdp growth rate, if a government is fine with not trying to have disinflation? Say we are in the position of 1981 with double digit inflation, and the fed keeps policy such that it stays that way through the decade, no more or no less. Does that result result in more/less/equal growth rates as rhe path we actually took in the 1980s?
Assuming that the tax cuts/spending of the 80s is the same in either case
The process of monetizing time (savings) deposits began in the early 1960’s. The sharp increase in DFI DD velocity since 1964 was the consequence of a variety of factors which include:
1) the daily compounding of interest on savings accounts in commercial banks and “thrift” institutions (S&Ls, CUs, and MSBs),
2) the increasing use of electronics to transfer funds (ETF accounts)
3) the introduction of “negotiable” commercial bank certificates of deposits, and
4) the rapid growth of ATS (automatic transfers of savings to DDs) and NOW (negotiable orders of withdrawal) accounts, and MMDA (money market deposit accounts)
...all which enabled people to economize on demand deposits (exploit opportunity costs), and resulted in the sharp increase in DD Vt.
But the most important single factor contributing to the increased rate of money turnover probably were those structural (liquidity) changes which made virtually all time (savings) deposits the equivalent of low velocity demand deposits (viz., the elimination of gate-keeping restrictions).
Auxiliary money, assets diverted that could and were, converted into demand drafts, immensely accelerated DD Vt. Bank customers were induced to shift out of non-interest-bearing DDs into TDs by the intro of new demand draft accounts. These developments enabled small savers to large corporations to minimize cash assets thereby accelerating Vt.
TDs standing alone aren’t inflationary. They are equivalent of DDs with a zero Vt. But they became inflationary when in effect they became interest-bearing demand drafts and were transformed into a net addition to the money stock thru liquidity enhancements, unrestricted by reserve requirements, and bankers freed to pay whatever the market dictated.
There was thus an increased incentive to hold TDs and no restrictions on their growth (leading to the unrecognized increase in AD up until 1981).
Structural changes in the management and acquisition of time deposits included the virtual elimination of Regulation Q ceilings (caps on rates paid to savers) and the introduction of interest-bearing checking accounts.
These institutional innovations allow all of us, from the treasurers of the largest corporations to the smallest savers, to hold any temporary surplus cash in an interest-bearing account which can be shifted at little or no cost, without notice, and no loss of accumulated income into demand deposits or currency.
It is obvious that it is monetary flow (volume times velocity) that measures money’s impact on production, prices and the economy.
The process of monetizing time (savings) deposits within the payment's system began in the early 1960’s with Citicorp’s Walter Wriston inventing the negotiable CD - which drew funds out from all over the world.
Wriston “presided over an encyclopedic range of innovations - among them negotiable CDs, term loans, syndicated loans, floating-rate notes and currency swaps-that ended forever the moribund banking of the 1950s and ushered in our razzle-dazzle age of finance”.
Wriston “masterminded the bank’s explosive change from stagnant deposit-and–loan institutions to a global purveyor of financial resources.” Consequently, banks began to manage their liabilities, and corporations began managing (minimizing) their non-interest-bearing cash balances.
Increased use of, and faster air traffic, speeded up the time for checks and clearing balances to be credited to the receiving banks, and the Fed further abetted the process by reducing “float” time to a maximum of two days (similar to the productivity enhancements from “Check 21” services on October 28, 2004).
The culmination of this speeding up process came with the introduction of electronic clearing (the epochal supplanting of clerical hand-held processing, e.g., lockbox processing, the closest collection and remittance processing of account receivables, viz., the robotized on-line, real-time, immediate streaming of economic activity, e.g., new technology utilizing OCR and data validation.
All through the 1960s, the Federal Reserve let its gold reserves fall as it expanded the monetary base. Gold reserves fell from equal to roughly 40% of the monetary base to roughly 10%. For the graphs, based on the Fed's weekly balance sheet, see pages 13 and 14 of this paper:
Federal Reserve and Treasury officials had forgotten what their predecessors of a generation before knew: continually losing gold reserves is a market signal that monetary policy needs to be tighter. Instead of understanding that monetary policy was the underlying problem, they blamed the symptoms, such as the balance of payments, and tried ineffective remedies such as the interest equalization tax. It is astonishing how clueless they were. See for instance William Silber's account of the end of the gold standard in his book Volcker: The Triumph of Persistence.
The Gold Standard, the last legal link to gold (prior to the "gold cover" bill of March 19, 1968), was fictional, the economic tie tenuous, and its protection was a myth
I'd like to have a post explaining in more detail why the world doesn't need more safe assets (i.e., dollars and USA public debt). Is it because they aren't literally needed (we would be better off without them, maybe because people invest there instead of boosting innovation and so on), or because, as I think Tabarrok points out, the private sector can create those assets at a lower cost than the government?
Think of it this way. The world's "need" for T-bonds is reflected in their yield. The greater the need, the lower the yield. The fiscal authorities should take that yield into account when deciding on optimal fiscal policy, and do a policy that minimizes the long run deadweight cost of taxes. That's what markets are for.
Here's an analogy. Exxon doesn't produce oil because they see that the public needs oil, they produce it because the market price gives them a signal to do so.
Deficits (supply of "safe" assets) should be such that Σ(expenditures with NPV>0). The "need" of foreigners for safe assets is part of what determines the discount rate of NPV. They get what they pay for.
re "(Base velocity also trended higher, exactly as you’d expect during a period of rising inflation.)"
You've got religion. But the monetary base is simply legal reserves (currency has no expansion coefficient). You can validate this by applying the money multiplier to both statistics.
The Great Inflation was due to William McChesney Martin’s change in its operating procedure to interest rate manipulation, combined with the "monetization of time deposits" in the commercial banking system.
I'd dispute that #1 and #2 were necessary or sufficient to cause the great inflation. # 3, actions by the Fed, without an particular fiscal action or "desire" or foreign central banks being about to buy and sell gold to the Fed at a fixed price or not could have produced a (the) great inflation. Of course it is important to know what factors led the Fed to take the actions that it did. [I'd love to know why the 2008-2020 Fed allowed inflation to undershoot its target.] But knowing those factors does not explain the inflation.
There was plenty to dispute in the Cowen-Tabarrok conversation, too.
I find it rather odd to debate what caused the Great Inflation. The answer is clearly loose monetary policy? People understood this at the time and for a long time afterwards – which absolutely helped pave the wave for Fed independence. The more interesting question is why was monetary policy so loose...
I'm not sure I understand your point #2. Are you arguing that the Great Inflation was caused by the gold peg change in 1968? Or that the Great Inflation caused the gold peg to change?
It’s really not fair or accurate to say, as Tabarrok did, that people were proud to abandon balanced budgets... Here’s LBJ in 1968:
"One way or the other we will be taxed. We can choose to accept the arbitrary and capricious tax levied by inflation, and high interest rates, and the likelihood of a deteriorating balance of payments, and the threat of an economic bust at the end of the boom.
Or, we can choose the path of responsibility. We can adopt a reasoned and moderate approach to our fiscal needs. We can apportion the fiscal burden equitably and rationally through the tax measures I am proposing."
Unfortunately, people chose inflation and (eventual) high interest rates rather than higher taxes!
I also don’t quite understand Tabarrok’s point about gold stability. Volatility increased by going off the gold standard? Well, yeah, obviously? If the price of gold is fixed, it won’t be volatile…
Alex was referring to the real or relative price of gold, which also became much more volatile. Unlike the nominal price, that increased real instability was not "obvious". The real exchange rate also became more volatile, another non-obvious result.
On the gold price peg abandonment, I'm saying it was a necessary condition. "Causation" is a very fuzzy term. Thus it would be weird to say "putting a bullet in the chamber caused the murder", so I get your point.
Money grew at less than a 2 percent rate in the decade ending in 1964. In the nine subsequent years money supply grew at a rate in excess of 6.5 percent...
The problems stemmed from using the wrong criteria (interest rates, rather than member bank legal reserves) in formulating & executing monetary policy. Net changes in Reserve Bank credit (since the Accord) were determined by the policy actions of the Federal Reserve. But William McChesney Martin, Jr. changed from using a “net free” or “net borrowed” reserve approach to the Federal Funds "Bracket Racket" c. 1965. Note: the Continental Illinois bank bailout provides a spectacular example of this practice.
The effect of tying open market policy to a fed funds bracket was to supply additional (& excessive) legal reserves to the banking system when loan demand increased. Since the member banks had no excess reserves of significance, the banks had to acquire additional reserves to support the expansion of deposits, resulting from their loan expansion. If they used the Fed Funds bracket (which was typical), the rate was bid up & the Fed responded by putting though buy orders, reserves were increased, & soon a multiple volume of money was created on the basis of any given increase in legal reserves.
This combined with the rapidly increasing transaction velocity of demand deposits resulted in a further upward pressure on prices. This is the process by which the Fed financed the rampant real-estate speculation that characterized the 70's, et. al.
Thanks for pointing this out. I do wonder why the oil shock(s) are not mentioned. I lived through that period of time and remember at one point that there were odd and even days that you could gas up depending on the last digit of your license plate. Oil is feedstock for a great many items and the dramatic price increase rippled through society. Volker's crushing of inflation benefited those of us who had no debt and put all our money in high yield insured savings accounts. It was an interesting time to be sure.
The basic problem was fast NGDP growth, not oil. Between 1971 and 1981 NGDP rose at an 11% rate, and prices rose 8%/year. That result is very close to what would have occurred with no oil shocks.
But what caused N-gNp to grow so fast? The problem was that the trading desk's operating procedure gave the bankers the wherewithal to obtain legal reserves whenever they expanded their loans-deposits. The pressure was always on top of the Fed Funds target because of the monetization of time deposits.
The catastrophic increase in the transaction's velocity of demand deposits, the transition from hand-held clerical processing to electronic processing, the regulatory removal of gated deposits, etc., also bolstered AD.
Velocity plateaued with the time bomb of 1981, with N-gNp hitting 19.2%, because of the widespread introduction of ATS and NOW accounts.
The FED more than validated OPEC's administered price increase. Otherwise, there would have been deflation in other prices.
The Great Inflation began in 1965, the first oil shock was 1973. The photos of people lining up for gas are memorable, as are the memories of gas rationing that people remember, but inflation had already been out of control for years.
Given some downwardly sticky prices, the Fed HAD to crank up inflation to let relative prices to adjust, but it over did it, as in 2021 but in a much bigger way.
And those gas lines were just Nixon's price control on gasoline.
Having not watched the debate, was cost push inflation even mentioned? It seems completely foolish to disregard the extreme increases in production and transaction costs for basically everything in the entire economy while only focussing on the actions of the Fed.
When oil, which at the time made up a large share of energy consumption, and an overwhelming majority of mobile energy production triples in price overnight, many businesses that were viable yesterday, won't/can't be viable today. Everything from your taxi trip (taxis need gasoline) to eggs in the supermarket (which need to be trucked in, and kept cool using energy intensive freezers) are going to face increased production costs.
The Fed definitely has some room to maneuver the economy, rightly and especially wrongly, but it isn't an omnipotent force that if we *just* get right, the economy will grow consistently and never experience inflation despite the underlying economic realities. If the United States decided to institute a 200% carbon tax overnight, no amount of stimulus or lowering rates is going to equate to an equally prosperous economy for many, many years. The same was true in the 70s, so only analyzing fiscal and monetary policy is going to miss the mark as far as a "good" explanation.
It turns out that energy shocks primarily affect relative prices, not the overall price level. Higher oil prices tend to raise the price of gasoline and reduce the price of cars. But car prices increased sharply in the 1970s! That's because an easy money policy caused NGDP to rise at 11% (1971-81) while RGDP was rising at barely over 3%. Nominal wages soared, so did the cost of producing cars. Inflation in the 1970s was primarily caused by excessive growth in aggregate demand, not supply shocks. Energy problems caused the price of oil to rise relative to the price of other goods, but I'm interested in the overall price level.
See Joseph Wang: "The earliest form of the velocity of money was formulated to show a relationship between the quantity of money and the value of all transactions. This is very different from the current formulation, which draws a relationship between the quantity of money and GDP, which is the income of a country. "
Remember that in 1978 (when Vt rose, but Vi fell) all economist’s forecasts for inflation were drastically wrong. Put into perspective: There were 27 price forecasts by individuals & 9 by econometric models for the year 1978 (Business Week). The lowest (Gary Schilling, White Weld), the highest, (Freund, NY, Stock Exch) & (Sprinkel, Harris Trust & Sav.).
The range CPI, 4.9 – 6.5 percent. For the Econometric models, low (Wharton, U. of Penn) 5.7%; high, 6.6% U. of Ga.). For 1978 inflation based upon the CPI figure was 9.018% [and Leland Prichard, in his Money and Banking class, predicted 9%].
See: G.6 Debits and Deposit Turnover at Commercial Banks
http://bit.ly/2pjr81u
See: “The Case of the Missing Money”
https://www.brookings.edu/wp-content/uploads/1976/12/1976c_bpea_goldfeld_fand_brainard.pdf
Scott,
Does inflation reduce the real gdp growth rate, if a government is fine with not trying to have disinflation? Say we are in the position of 1981 with double digit inflation, and the fed keeps policy such that it stays that way through the decade, no more or no less. Does that result result in more/less/equal growth rates as rhe path we actually took in the 1980s?
Assuming that the tax cuts/spending of the 80s is the same in either case
I suspect it reduces RGDP, but only slightly. It's a slight disincentive to save and invest.
The process of monetizing time (savings) deposits began in the early 1960’s. The sharp increase in DFI DD velocity since 1964 was the consequence of a variety of factors which include:
1) the daily compounding of interest on savings accounts in commercial banks and “thrift” institutions (S&Ls, CUs, and MSBs),
2) the increasing use of electronics to transfer funds (ETF accounts)
3) the introduction of “negotiable” commercial bank certificates of deposits, and
4) the rapid growth of ATS (automatic transfers of savings to DDs) and NOW (negotiable orders of withdrawal) accounts, and MMDA (money market deposit accounts)
...all which enabled people to economize on demand deposits (exploit opportunity costs), and resulted in the sharp increase in DD Vt.
But the most important single factor contributing to the increased rate of money turnover probably were those structural (liquidity) changes which made virtually all time (savings) deposits the equivalent of low velocity demand deposits (viz., the elimination of gate-keeping restrictions).
Auxiliary money, assets diverted that could and were, converted into demand drafts, immensely accelerated DD Vt. Bank customers were induced to shift out of non-interest-bearing DDs into TDs by the intro of new demand draft accounts. These developments enabled small savers to large corporations to minimize cash assets thereby accelerating Vt.
TDs standing alone aren’t inflationary. They are equivalent of DDs with a zero Vt. But they became inflationary when in effect they became interest-bearing demand drafts and were transformed into a net addition to the money stock thru liquidity enhancements, unrestricted by reserve requirements, and bankers freed to pay whatever the market dictated.
There was thus an increased incentive to hold TDs and no restrictions on their growth (leading to the unrecognized increase in AD up until 1981).
Structural changes in the management and acquisition of time deposits included the virtual elimination of Regulation Q ceilings (caps on rates paid to savers) and the introduction of interest-bearing checking accounts.
These institutional innovations allow all of us, from the treasurers of the largest corporations to the smallest savers, to hold any temporary surplus cash in an interest-bearing account which can be shifted at little or no cost, without notice, and no loss of accumulated income into demand deposits or currency.
It is obvious that it is monetary flow (volume times velocity) that measures money’s impact on production, prices and the economy.
The process of monetizing time (savings) deposits within the payment's system began in the early 1960’s with Citicorp’s Walter Wriston inventing the negotiable CD - which drew funds out from all over the world.
Wriston “presided over an encyclopedic range of innovations - among them negotiable CDs, term loans, syndicated loans, floating-rate notes and currency swaps-that ended forever the moribund banking of the 1950s and ushered in our razzle-dazzle age of finance”.
Wriston “masterminded the bank’s explosive change from stagnant deposit-and–loan institutions to a global purveyor of financial resources.” Consequently, banks began to manage their liabilities, and corporations began managing (minimizing) their non-interest-bearing cash balances.
Increased use of, and faster air traffic, speeded up the time for checks and clearing balances to be credited to the receiving banks, and the Fed further abetted the process by reducing “float” time to a maximum of two days (similar to the productivity enhancements from “Check 21” services on October 28, 2004).
The culmination of this speeding up process came with the introduction of electronic clearing (the epochal supplanting of clerical hand-held processing, e.g., lockbox processing, the closest collection and remittance processing of account receivables, viz., the robotized on-line, real-time, immediate streaming of economic activity, e.g., new technology utilizing OCR and data validation.
All through the 1960s, the Federal Reserve let its gold reserves fall as it expanded the monetary base. Gold reserves fell from equal to roughly 40% of the monetary base to roughly 10%. For the graphs, based on the Fed's weekly balance sheet, see pages 13 and 14 of this paper:
https://sites.krieger.jhu.edu/iae/files/2018/05/SAE-No.104-May-2018-Federal-Reserve-Balance-Sheet-from-1942-1975-FINAL.pdf
Federal Reserve and Treasury officials had forgotten what their predecessors of a generation before knew: continually losing gold reserves is a market signal that monetary policy needs to be tighter. Instead of understanding that monetary policy was the underlying problem, they blamed the symptoms, such as the balance of payments, and tried ineffective remedies such as the interest equalization tax. It is astonishing how clueless they were. See for instance William Silber's account of the end of the gold standard in his book Volcker: The Triumph of Persistence.
I agree, although I wonder if it was partly willful ignorance. They simply didn't care about the gold price.
The Gold Standard, the last legal link to gold (prior to the "gold cover" bill of March 19, 1968), was fictional, the economic tie tenuous, and its protection was a myth
My take is here.
https://mikealexander.substack.com/p/how-the-new-deal-order-fell
Pod producer here. The next episode of the MR podcast covers the 1970s oil shocks specifically. That'll release 10/22.
Thanks Jeff. Tell them that if they blame oil for the inflation, they can expect a vigorous response. :)
What that shows is that you don't know how the banking system works.
I'd like to have a post explaining in more detail why the world doesn't need more safe assets (i.e., dollars and USA public debt). Is it because they aren't literally needed (we would be better off without them, maybe because people invest there instead of boosting innovation and so on), or because, as I think Tabarrok points out, the private sector can create those assets at a lower cost than the government?
Think of it this way. The world's "need" for T-bonds is reflected in their yield. The greater the need, the lower the yield. The fiscal authorities should take that yield into account when deciding on optimal fiscal policy, and do a policy that minimizes the long run deadweight cost of taxes. That's what markets are for.
Here's an analogy. Exxon doesn't produce oil because they see that the public needs oil, they produce it because the market price gives them a signal to do so.
Deficits (supply of "safe" assets) should be such that Σ(expenditures with NPV>0). The "need" of foreigners for safe assets is part of what determines the discount rate of NPV. They get what they pay for.
re "(Base velocity also trended higher, exactly as you’d expect during a period of rising inflation.)"
You've got religion. But the monetary base is simply legal reserves (currency has no expansion coefficient). You can validate this by applying the money multiplier to both statistics.
The Great Inflation was due to William McChesney Martin’s change in its operating procedure to interest rate manipulation, combined with the "monetization of time deposits" in the commercial banking system.
I'd dispute that #1 and #2 were necessary or sufficient to cause the great inflation. # 3, actions by the Fed, without an particular fiscal action or "desire" or foreign central banks being about to buy and sell gold to the Fed at a fixed price or not could have produced a (the) great inflation. Of course it is important to know what factors led the Fed to take the actions that it did. [I'd love to know why the 2008-2020 Fed allowed inflation to undershoot its target.] But knowing those factors does not explain the inflation.
There was plenty to dispute in the Cowen-Tabarrok conversation, too.
https://thomaslhutcheson.substack.com/p/cowen-and-tabarrok-on-inflation.