"Ultimately, as many have recognized, the inflation largely reflected strong aggregate demand, the product of easy fiscal and monetary policies, excess savings accumulated during the pandemic, and the reopening of locked-down economies.
In summary:
- Tax Cuts and Stimulous Programs increased savings
- Trump acts borrowed $8.4 Trillion, Biden also spent a few Trillion...
- Fed Banks kept rates too low for too long
- Companies slowed down during Pandemic
- People started spending faster than production could ramp up
- Prices went up...
Then the Fed Banks FINALLY raised rates, people started to spend down their savings, US Govt cut spending and the price increases slowed. No magic here...
8 comments:
Inflation is a complicated phenomenon and many things affect the value of money in different ways. My own view of the Covid era inflation is that concerned about a slowdown of economic activity during the Covide crisis combined with a collapse of markets, the federal government made the decision to dump huge amounts of cash into the economy. This soothed the economy but at the price of inflation down the road particularly when the economy revived down the road. This is basically what happened, and how it happened took different forms. One of the problems for economists is that we have never had a pandemic in modern times, so we didn't know that much about the impact a pandemic would have. We learned as we went along.
I am no economist, but think certain things about the economy. One of them is that inflation is inversely related to unemployment. This works out well for demagogues, because it ensures they always have something to complain about. When employment is high, they grouse about inflation. When inflation is low they grouse about high unemployment being too low. For demagougues, the porridge is systemically unsatisfactory.
--Hiram
In this it sounds like full employment was a minor factor.
It was a choice, and certainly a debatable one with reasonable arguments on both sides. From my perspective, I worry a lot more about jobs than inflation. I sense a certain amount of regret on the Republican side that they have to campaign on inflation when they would really rather campaign on joblessness. My point generally is that if you don't have money, why do you care about its value?
I think the Republican Party really has disintegrated. They see it as their job to get elected. Consider what's happening now. The Republicans control the House of Representatives. The House can be the place where the bulk of the legislative work can get done for the simplest reason. It has more than four times the membership of the senate, and the vast majority of them represent far fewer individuals than senators. Yet this house does nothing. Take Health Care. Obamacare has lots of stuff wrong with it. As Speaker Pelosi famously said, you have to pass a bill to know what's in it. We have, and no we know where it can be improved. Well, we did pass it and it has been in effect for a number of years. Surely, we must have identified areas for improvement. Where is the remedial legislation from house republicans? Why do we not hear about the defects and their efforts to correct them? Who don't we hear anything at all for them? After all, they alone have the power to bring legislation to the floor. When one party controls the house, the other party might as well be comprised of so many potted plants.
--Hiram
It is odd how dysfunctional they are.
It's been a slippery slope, frog in boiling water kind of a deal. But I also think its a question of our system wearing out. The strategies we use to mediate our contradictions are no longer working. Because we reject credibility, we can no longer have truth.
--Hiram
We have "truth"....
In fact we have at least 2 of them... :-)
And people get to associate and reinforce theirs regularly...
I do miss having only "national" news...:-)
When everyone watched Walter Cronkite or equivalent polarization was less likely.
The problem is we have conflicting truths. Which is worse? Inflation or unemployment? What is the "truthful" answer? We are faced with complex issues, and what makes an issue complex is that people disagree on them, and almost always the agreements are reasonable, with good arguments on all sides. I submit that in a healthy, functioning society, each side has good faith and recognizes the good faith of others. When there are disagreements, Igood faith efforts are made to resolve them.
==Hiram
That would be nice...
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