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Two Economic Experts Speak About Inflation In America

economic experts speak on inflation in america
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EDITOR'S NOTE: Two economic experts recently had interesting, and opposing, things to say about the current state of inflation in America. Harvard professor Jason Furman, who is also the former Chairman of the White House Council of Economic Advisors under President Obama, said, “There’s no easy fix if the Federal Reserve is ultimately proven wrong about the inflation being ‘transitory.’” He also noted that “It turns out, in the short run, you try to push too hard, too fast, and the economy can’t make the adjustment on the real production side, and you end up with more inflation and that’s what we are seeing.” However, current White House Council of Economic Advisers member Jared Bernstein made comments that show the current administration is still hanging on to the pandemic-based, “transitory narrative. Bernstein said, “I just don’t think there’s a coherent story about inflation without recognizing [the pandemic’s] role, and every forecast I’ve seen has it settling down in the second half of next year.” 

Who could have predicted this? As CNBC reports:

The consumer price index rose 6.2% year over year and on a monthly basis, CPI increased 0.9%, both significantly above estimates.

Stunning. The goal of overshooting the arbitrary 2% inflation target has finally been met in a major way. Let’s see what two economic experts have to say.

According to Jason Furman, a Harvard professor and former Chairman of the White House Council of Economic Advisors under President Obama:

There’s no easy fix if the Federal Reserve is ultimately proven wrong about the inflation being “transitory.” 

Of course, the “transitory” inflation narrative has been critiqued, doubted and explained many times by various authors at the Mises Institute. I wrote in April that Transitory Inflation Is the New Buzz Phrase at the Fed, expressing various concerns including the idea that without transitory deflation, or a period where prices decline, all price increases become permanent.

Even “if” the consumer price index rose by only 2% next year, the cost of living will increase next year as well, and the compounding effects of inflation will continue.

The professor continued, quoted as saying:

What we are seeing is inflation before the unemployment rate gets all the way to where we want it to get... Some people didn’t think we could have inflation before you have unemployment below 3.5%, or some number like that.

Seems strange. It sounds like he believes there really exists a trade-off between inflation and unemployment. As for the significance of unemployment at 3.5%, or in his words “some number like that,” mainstream economists, like members of the Fed, continue to exhibit great difficulty in explaining their economic reasoning.

Professor Furman illustrates more of this confusion:

It turns out, in the short run, you try to push too hard, too fast, and the economy can’t make the adjustment on the real production side, and you end up with more inflation and that’s what we are seeing.

It’s true that central bank money creation and government stimulus checks (paid through money creation) is a great way to stimulate demand and prices… but that’s about all that gets stimulated. Large parts of the economy shutting down exacerbated the situation, likely leading to a reduction in production activities.

Yet current White House Council of Economic Advisers member, Jared Bernstein, illustrates a deeper disconnect to the real economy by saying:

When Covid hit there was a massive shift from in-person services to goods demand, and savings went up as people stopped eating out and staying in hotels, and that combined with the financial relief provided by the government led to even greater savings and demand which have ultimately contributed to the issues at ports.

It’s odd that “savings” or refraining from eating out and going to hotels takes credit for the country’s economic woes. Mr. Bernstein follows with:

I just don’t think there’s a coherent story about inflation without recognizing Covid’s role, and every forecast I’ve seen has it settling down in the second half of next year.

What more can be said when the White House’s very own economic experts show little interest in understanding the history of inflation, the effects of changes to the money supply, or very basic economic ideas like the role of savings and production in an economy? Hopefully his forecast is accurate that in the second half of 2022 prices will settle down a bit… but that’s about all we can hope for at the moment.

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