Let us not forget ridiculous low borrowing rates, for over priced retail item's, had a big impact on inflation. While many items have risen by 20 percent or more, wages have not kept pace. Higher borrowing rates would have not only kept prices in check, it would have been a plus to those saving for a rainy day. " I'll gladly pay you Tuesday for a hamburger today! "
The Fed made a call. Most economists thought there was a trade off, more inflation in the short run, but less unemployment. I think the unemployment issue came down to the "lost generation" argument. When a generational cohort has difficulty finding good first jobs, there is a life-long deficit for them. Or so it is claimed. I'm betting by the way, that fewer items have increased in the 20% range and that the present 7% overall will level out. We'll see. Administration policy should be, and is, to increase production. We need to keep in mind that the part of the supply chain tangle is simply much greater consumption in products than anticipated by suppliers. (change in consumer choices)
It doesn't seem to be true that the Fed or the government caused inflation right now. The Fed was running QE during the last administration and the government had historically high deficits. Inflation was still low. Then, with the lock downs and sick call-ins, we did see low prices. It's pretty easy to guess the main cause. For instance, gas prices were low then but we weren't driving nearly as much. Now, because gasoline production is a little bit stickier than some other things, the increased demand combined with lagging production increase is the main culprit for higher prices. Classic supple and demand. Our economy and many economies in the world see reduced production for various things even though demand is high because because of covid and it's effects. So, while the Fed and the government may have supported prices to an extent (rather than letting us fall into a depression), Neither is the cause of inflation today.
Greg, I think it is important for Americans to discuss this question with an open mind. Economic forecasting, as well as explaining, is nowhere near exact. We need to be careful that we are not simply comparing an average year (now) with a past year (2020) when prices were depressed or were relatively static. The money supply has been expanded by QE. Consumer spending was irregular during the pandemic. There is pend up demand. I am personally cautious about "inflation" alarms, though. It may be that this has been a price rebalancing that was overdue. There are many factors, some psychological, that influence business and personal decisions. It is pretty standard economics to view pricing as a discovery process. As a result of the pandemic this process was stressed. We should expect less certainty and more variability. Supply was disturbed with respect to certain products. Demand reflected changing living patterns. It seems to me that there should be natural price inflation over time as income distribution varies and there are productivity gains. I could go on. With greater efficiencies of production prices could decline, but then standards of living also increase as people have more to spend. It's not simple. Unfortunately, our ideological understandings often are.
We should definitely keep open minds. I think it's really important to find things in their context and try to figure out the role played by those things, along with all the other things at play. But I think there were signs of problems before covid. The QE at the time and the massive deficits seemed like a Herculean effort to keep the economy afloat. It's a bit of a surprise to me that we're talking about inflation rather than the next great recession after a couple years of covid disruptions.
Let us not forget ridiculous low borrowing rates, for over priced retail item's, had a big impact on inflation. While many items have risen by 20 percent or more, wages have not kept pace. Higher borrowing rates would have not only kept prices in check, it would have been a plus to those saving for a rainy day. " I'll gladly pay you Tuesday for a hamburger today! "
The Fed made a call. Most economists thought there was a trade off, more inflation in the short run, but less unemployment. I think the unemployment issue came down to the "lost generation" argument. When a generational cohort has difficulty finding good first jobs, there is a life-long deficit for them. Or so it is claimed. I'm betting by the way, that fewer items have increased in the 20% range and that the present 7% overall will level out. We'll see. Administration policy should be, and is, to increase production. We need to keep in mind that the part of the supply chain tangle is simply much greater consumption in products than anticipated by suppliers. (change in consumer choices)
It doesn't seem to be true that the Fed or the government caused inflation right now. The Fed was running QE during the last administration and the government had historically high deficits. Inflation was still low. Then, with the lock downs and sick call-ins, we did see low prices. It's pretty easy to guess the main cause. For instance, gas prices were low then but we weren't driving nearly as much. Now, because gasoline production is a little bit stickier than some other things, the increased demand combined with lagging production increase is the main culprit for higher prices. Classic supple and demand. Our economy and many economies in the world see reduced production for various things even though demand is high because because of covid and it's effects. So, while the Fed and the government may have supported prices to an extent (rather than letting us fall into a depression), Neither is the cause of inflation today.
Greg, I think it is important for Americans to discuss this question with an open mind. Economic forecasting, as well as explaining, is nowhere near exact. We need to be careful that we are not simply comparing an average year (now) with a past year (2020) when prices were depressed or were relatively static. The money supply has been expanded by QE. Consumer spending was irregular during the pandemic. There is pend up demand. I am personally cautious about "inflation" alarms, though. It may be that this has been a price rebalancing that was overdue. There are many factors, some psychological, that influence business and personal decisions. It is pretty standard economics to view pricing as a discovery process. As a result of the pandemic this process was stressed. We should expect less certainty and more variability. Supply was disturbed with respect to certain products. Demand reflected changing living patterns. It seems to me that there should be natural price inflation over time as income distribution varies and there are productivity gains. I could go on. With greater efficiencies of production prices could decline, but then standards of living also increase as people have more to spend. It's not simple. Unfortunately, our ideological understandings often are.
We should definitely keep open minds. I think it's really important to find things in their context and try to figure out the role played by those things, along with all the other things at play. But I think there were signs of problems before covid. The QE at the time and the massive deficits seemed like a Herculean effort to keep the economy afloat. It's a bit of a surprise to me that we're talking about inflation rather than the next great recession after a couple years of covid disruptions.
Let's get down more in the weeds and talk about inflation. I'll try a blog soon.