There is some risk of inflation, depending on how the Fed tries to solve the Covid19 aftereffects. While you use fiscal policy history, I use monetary policy history.
This debate on the Biden plan is going in the direction of the important economics subject of the DURATION of the inflationary impact of public deficits.
This article addresses it using history, what is valid, but it also deserves analysis from 2 other perspectives :
> the mechanical and quantitative propagation of deficits on prices levels, without any action of the FED and
> the same, with the FED acting to manage the process.
"History is the great laboratory of economics" ...
"The problem, however, is how to select these examples."
The 2nd assertion indeed means that history is not properly a laboratory, which allow CONTROLLED experiments.
This contradiction is far from annul the great merits of this article. Indeed, this article is exemplary on the need of great care when searching historical lessons, in order to avoid bad lessons and getting only the good ones.
This also brings to mind how prone to errors historical arguments are, mainly when taken with little care, that are their most common use, as some comments below exemplify.
One thing I was taught at the old blog was to think for yourself and not to parrot others. The Boskin commission changed the way we measured inflation. So I’m not sure if it’s relevant to look at historical data.
My fear is that a brief spike in inflation (say, 5% or above) will be much more damaging politically than economically, especially if it peaks in 2022 before the mid-terms. Republicans would undoubtedly use it to discredit the ARP ("failed stimulus') and argue that the economy is spinning out of control under Democratic stewardship. I'm still traumatized by Nov. 4, 1980.
The 70's are a bad analogy because the inflation at that time was primarily triggered (and ended) by the grain and oil price spikes, not by excess money in the hands of consumers (no, wages were not increasing at an excessive rate). Insofar as the ARP distributes a large amount of money immediately to consumers, the closest analogy is not wars themselves, but what happened after WW II when rationing ended in 1946 and people got to spend their huge wartime savings on scarce consumer goods. There was inflation then, but it subsided without change in interest rates.
But if the danger is longer-term spending in a Green New Deal why isn't the analogy Japan in the 90's? Japan spent an enormous amount on infrastructure and other projects, running up debt/GDP eventually over 230% and there was no hint of inflation or "overheating". Economists don't know as much as they think they do about the effects of fiscal stimulus (or monetary policy either for that matter).
By the way nobody seems to be considering the likelihood of another recession caused by financial collapse. Are stock prices going to keep going up forever? Basically the market has already priced in a huge boom.
One of the moderating issues not mentioned here is the presence of more perfect price knowledge. With the internet ability to compare pricing nearly worldwide, and more open trade, inflation (at least goods inflation) should be held down. I am not sure that wages will be affected one way or the other. That is a question for the future.
It's not quite right that "nobody is willing to try out potentially disastrous policies". Brazil's president Dilma Rousseff did, twice: once in her 1st mandate, overspending in low-return projects during a time of full employment, thus pushing inflation up; and then again in her 2nd mandate, with strict austerity which led to recession, lower government revenues, and failure to control public deficit.
Very interesting! However, I would like to see more posts about buildings and food.
More articles please! I'll pay!
There is some risk of inflation, depending on how the Fed tries to solve the Covid19 aftereffects. While you use fiscal policy history, I use monetary policy history.
https://marcusnunes.substack.com/p/inflation-mongering-is-back
This debate on the Biden plan is going in the direction of the important economics subject of the DURATION of the inflationary impact of public deficits.
This article addresses it using history, what is valid, but it also deserves analysis from 2 other perspectives :
> the mechanical and quantitative propagation of deficits on prices levels, without any action of the FED and
> the same, with the FED acting to manage the process.
"History is the great laboratory of economics" ...
"The problem, however, is how to select these examples."
The 2nd assertion indeed means that history is not properly a laboratory, which allow CONTROLLED experiments.
This contradiction is far from annul the great merits of this article. Indeed, this article is exemplary on the need of great care when searching historical lessons, in order to avoid bad lessons and getting only the good ones.
This also brings to mind how prone to errors historical arguments are, mainly when taken with little care, that are their most common use, as some comments below exemplify.
One thing I was taught at the old blog was to think for yourself and not to parrot others. The Boskin commission changed the way we measured inflation. So I’m not sure if it’s relevant to look at historical data.
My fear is that a brief spike in inflation (say, 5% or above) will be much more damaging politically than economically, especially if it peaks in 2022 before the mid-terms. Republicans would undoubtedly use it to discredit the ARP ("failed stimulus') and argue that the economy is spinning out of control under Democratic stewardship. I'm still traumatized by Nov. 4, 1980.
The 70's are a bad analogy because the inflation at that time was primarily triggered (and ended) by the grain and oil price spikes, not by excess money in the hands of consumers (no, wages were not increasing at an excessive rate). Insofar as the ARP distributes a large amount of money immediately to consumers, the closest analogy is not wars themselves, but what happened after WW II when rationing ended in 1946 and people got to spend their huge wartime savings on scarce consumer goods. There was inflation then, but it subsided without change in interest rates.
But if the danger is longer-term spending in a Green New Deal why isn't the analogy Japan in the 90's? Japan spent an enormous amount on infrastructure and other projects, running up debt/GDP eventually over 230% and there was no hint of inflation or "overheating". Economists don't know as much as they think they do about the effects of fiscal stimulus (or monetary policy either for that matter).
By the way nobody seems to be considering the likelihood of another recession caused by financial collapse. Are stock prices going to keep going up forever? Basically the market has already priced in a huge boom.
One of the moderating issues not mentioned here is the presence of more perfect price knowledge. With the internet ability to compare pricing nearly worldwide, and more open trade, inflation (at least goods inflation) should be held down. I am not sure that wages will be affected one way or the other. That is a question for the future.
It's not quite right that "nobody is willing to try out potentially disastrous policies". Brazil's president Dilma Rousseff did, twice: once in her 1st mandate, overspending in low-return projects during a time of full employment, thus pushing inflation up; and then again in her 2nd mandate, with strict austerity which led to recession, lower government revenues, and failure to control public deficit.
A doubling of prices (a la Civil War and WW1) will KILL the already struggling middle class! Your argument just turned me against the ARP!