January 25, 2022

Inflation

“With inflation punishing consumers and threatening the economy, the Federal Reserve this week will likely signal its intent to begin raising interest rates in March for the first time in three years.” AP News

“Inflation jumped at its fastest pace in nearly 40 years [in December], a 7% spike from a year earlier that is increasing household expenses, eating into wage gains and heaping pressure on President Joe Biden and the Federal Reserve to address what has become the biggest threat to the U.S. economy… Biden and some congressional Democrats have begun to blame large corporations. They say meat producers and other industries are taking advantage of pandemic-induced shortages to drive up prices and profits.” AP News

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From the Left

The left argues that Biden’s policies successfully alleviated the Covid-induced recession, and calls for a renewed focus on mitigating inflation.

“Unemployment has lately been falling as fast as it did during the Reagan-era ‘morning in America’ recovery… Although it’s true that inflation erodes real incomes, there’s overwhelming evidence that maintaining full employment is extremely important for reasons that go beyond money. Jobs bring in income; but they also, for many workers, bring dignity, so that being unemployed damages happiness far more than you can explain simply by the lost dollars…

“There is little evidence that inflation is getting entrenched. The bond market is implicitly forecasting high inflation this year but not beyond; the point isn’t that the market is necessarily right, but rather that one important measure of inflation expectations shows no sign that people are betting on a return to the 1970s. Consumer surveys tell a similar story… So far, then, we seem to be looking at an extraordinarily quick economic recovery from a devastating economic shock, coming at the cost of an unpleasant but probably temporary surge in inflation.”
Paul Krugman, New York Times

“For the core of the labor force, workers ages 25 to 54, employment recovered more quickly than in the prior three recessions, dating back to 1990. That’s a big deal: Even when paychecks are losing value, it’s better to get one. Lower-wage workers have seen particularly strong wage growth. For workers in the bottom third of the wage distribution, Arindrajit Dube, an economist at the University of Massachusetts, Amherst, estimates that average wage gains have exceeded inflation…  

“Mr. Biden, however, has contributed to his own political woes… The administration has not taken action in some areas that could help to restrain inflation or mitigate its effects. The tariffs that Donald Trump imposed on Chinese imports remain in place. Legal immigration has continued to decline, worsening labor shortages… Democrats, unable to agree on the terms of a permanent expansion, have allowed the expanded [child tax] benefits to expire, depriving millions of working families of needed help.”
Editorial Board, New York Times

“The truth is that presidents have relatively limited tools for fighting inflation… By law, in any case, it’s the Federal Reserve’s job to maintain stable prices. Biden does have the ability to shape leadership at the Fed. He’s so far made one good choice, in renominating Jerome H. Powell as Fed chair. (Powell is respected by markets and has lately expressed more hawkishness about the inflation threat.) Biden has three other Fed board seats to fill though…

“Though names have been floated, he has dragged his feet on nominations — even though he’s a year into his presidency and the country faces its greatest inflation threat in a generation. If Biden is truly worried about the threats posed by inflation, he will immediately nominate three professionals with a track record of political independence and a credible commitment to stabilizing prices.”
Catherine Rampell, Washington Post

From the Right

The right argues that Biden’s policies are exacerbating inflation, as many economists predicted.

The right argues that Biden’s policies are exacerbating inflation, as many economists predicted.

“Last month, Biden characterized inflation as a ‘bump in the road.’ But that ‘bump’ is a hole in the gas tank for tens of millions of Americans who drive to work. Oil prices closed at their highest level in seven years the day Biden spoke. Biden said in July, ‘There’s nobody suggesting there’s unchecked inflation on the way,’ but there were plenty of dire warnings from experts early last year. The president claims that inflation is a problem everywhere, but National Public Radio reported that ‘between 2019 and 2021, the U.S. saw one of the biggest inflation rate increases in the world, behind only Brazil and Turkey.’”
James Bovard, New York Post

“The inflationary risks of the CARES Act were obvious enough at the time that several Senate Republicans initially balked at its structure. A number of economists warned against the dumping of new cash into the economy via the second and third major relief packages, especially the third. Larry Summers, not exactly an economic conservative, explicitly warned that the scope of the relief package would overheat the economy and trigger an inflationary wave. How the predicted outcome of all these policy decisions can possibly be called an ‘unexpected twist’ [by the Washington Post] is beyond explanation, except as willful ignorance of monetary policy and manipulation…

“The massive monetary expansions forced by Congress for the relief spending came on top of a decade of monetary expansions at the Federal Reserve, a goosing of economic output that left the global economy at risk for structural inflation that even the Fed will find hard to fight now. Those policies go back to the Fed’s response to the Great Recession and the Obama-Biden administration’s decisions to respond with low-growth tax and regulatory policies in its aftermath…

“In the end, inflation sticks it to the working classes. This is exactly what’s happening, thanks to decisions made by progressives over the last two years as well as over a decade ago when they didn’t let the previous crisis go to waste either.”
Ed Morrissey, Hot Air

“For the monopolization theory to work, proponents would need to explain why nearly every sector of the economy decided to start using its monopolistic price-making power at roughly the same time late last summer after not using it at any time in recent memory before then. That’s not economics; it’s a conspiracy theory…

“The cause of the current bout of inflation is the fastest increase in the money supply in the history of the Federal Reserve system combined with record levels of fiscal stimulus combined with supply constraints that are limiting GDP growth. Too much money, not enough goods. The supply constraints are largely due to decades of bad transportation policy and pandemic-related labor shortages. But there wouldn’t be an issue if it weren’t also true that consumers are buying more stuff than ever before with an economy juiced with money from the Fed as the backdrop. Those are separate concerns from antitrust.”
Dominic Pino, National Review

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