What's been causing inflation is important. Get it wrong, and we get the wrong policies. And we learn the wrong lessons for the future.
When profit driven inflation led CEOs to boast to their shareholders about their great management of lower production output yet higher profits from higher prices of course Bernanke and company had to ignore that. It’s like stepping over dog shit on the sidewalk and pretending it’s not there
Kudos at raising the issue of oligopoly price gouging as a possible significant cause of the current cycle of inflation and softly pointing out that B&B have a noticeable blind spot on this issue. The problem exists as any consumer with a wallet can see, but is overlooked in officialdom because (1) the Fed has no responsibility or authority over this dynamic and (2) Congress and the White House, even if they had the political will, would need years to correct the major business consolidations throughout the consumer economy and would experience such lobbying pushback that the real chance of fixing this contribution to inflation is actually (and unfortunately) very small.
I've raised prices, and I've kept on raising them. Most of my customers are the 10%, probably more higher than that even. I still get most jobs I bid. I hear from everyone that they can't find help, but I never hear of starting wages for skilled workers at $50 or more, and I think that's where they need to be, or higher. For now profits are going to small businesses that can increase prices. A heck of a lot of spending is by the top quintile, and they are still spending.
Others, my neighbors, myself, simply don't spend much. No services. Food is still very cheap, so is gas. Tuition is vastly overpriced, plus kids have to rent.
Yep, as the article says, inflation is indeed complicated.
Yes, “it’s complicated” and much of complication comes from the ideology built in the current models. In these models labor is nearly always “blamed”; in recessions workers must not only not have jobs but must demonstrate ability and willingness to work otherwise they become lazy bums who will increase unemployment rate if not excluded; during inflation it is the wage growth that is a problem to be hammer down. The idea of inflation as a “price-price spiral” makes better sense; it says that to the extent to which product price is factor cost plus, it doesn’t make any sense to argue that all other factors of production, except labor, are absolutely inflation neutral. This time around workers, especially those who saved us by delivering goods and services while most of us a holed up in our safe place, deserve some post-Covid dividend (wage increase). It is not their fault that supply has not been able to bounce back with ease.
Wow! Great post. Thank you!
With due respect, I'm a statistician, not an economist, so when I hear the so-called leading economists talk about how complicated "inflation" is, I think of Einstein's famous quote: "If you can't explain something to a 6-year-old, you don't understand it yourself." Nobel laureate Richard Feynman said essentially the same thing, and he was talking about quantum mechanics. Now I'm waiting with bated breath for Lawrence Summers to say something that anybody can understand.
I was involved in the sale of an IT services business 18 months ago. Salaries & wages were the lion’s share of expenses. The first action the new owners took was to raise prices 7%. I asked why. “Inflation of course” was the answer I got. So, are you giving the employees 7% raises, I asked? Of course not was the answer. I am convinced the expectation of inflation remains the primary cause of inflation. That, and price gouging.
BB & Blanchard add nothing new to variety of opinions which we are already reading on Econ blogs since last 2 years. If they wanna give a new perspective, can they quantify/model on how much rate hikes have actually contributed in reducing inflation in US?