Sprinkles from the Left

A majority of liberals said they were “very concerned” or “somewhat concerned” about inflation in the U.S. (21% & 49%, respectively; 70% total; CivicScience poll March 25 )

The inflation debate is familiar to anyone following financial markets or the policy discussion in Washington. The policy response has been massive — fiscal measures amounting to 22% of GDP have been enacted, not even counting direct support for the health-care sector. This has led to concerns that the government is “overfilling the bathtub” and creating higher inflation that, once it takes root, will be hard to eradicate.

At the same time, some inflation is to be expected as the economy re-opens and many of the hardest-hit sectors, from hotels to airlines, see their customers return. A variety of supply-side chokeholds, from semiconductor-chip shortages to container-shipping delays, are also putting upward pressure on prices.

The hard question is whether higher inflation, such as we saw in April, is a blip (as Janet Yellen suggests) or a harbinger of a longer-term problem (as economist Larry Summers contends). The best forecasters are definitively on Yellen’s side. And they include not only the people responsible for the leading macro-econometric models at the Federal Reserve, the Council of Economic Advisers and Wall Street banks…

But it will take until much later in the year and perhaps well into 2022 to know for sure whether the superforecasters once again turn out to be right.

Peter R. Orszag, Bloomberg

Slight increases in the rate of inflation in the United States and Europe have triggered financial-market anxieties. Has U.S. President Joe Biden’s administration risked overheating the economy with its $1.9 trillion rescue package and plans for additional spending to invest in infrastructure, job creation, and bolstering American families?

Such concerns are premature, considering the deep uncertainty we still face. We have never before experienced a pandemic-induced downturn featuring a disproportionately steep service-sector recession, unprecedented increases in inequality, and soaring savings rates.

No one even knows if or when COVID-19 will be contained in the advanced economies, let alone globally. While weighing the risks, we also must plan for all contingencies. In my view, the Biden administration has correctly determined that the risks of doing too little far outweigh the risks of doing too much.

Now that the normal process has been interrupted, there will be hiccups, and these will translate into price increases for one product or the other. But there is no reason to believe that these movements will fuel inflation expectations and thus generate inflationary momentum, especially given the overall excess capacity around the world.

Joseph E. Stiglitz is a Nobel laureate in economics, a professor at Columbia University and chief economist at the Roosevelt Institute. (Published in MarketWatch)

Sprinkles from the Right

A vast majority of conservatives said they were “very concerned” or “somewhat concerned” about inflation in the U.S. (69% & 23%, respectively; 92% total; CivicScience poll March 25 )

Real economic growth is surging more than it did during the Reagan years. U.S. government spending is growing at the fastest clip since World War II. The housing market is running hotter than it did in the runup to 2008. Financial-market ebullience is stronger and broader than during the dot-com boom at the turn of the century. And economic output will shortly surpass historic highs.

The Fed might be right. The surge in prices and wages might be transitory. The widespread anecdotes of worker shortages and significant wage increases might not constitute a sustainable trend. Inflation expectations might be stable. Count me skeptical of the Fed’s convictions. The risks the Fed is taking with its winsome forecast are significant, and the consequences of policy error are severe…

The resulting U.S. dollar weakness—in train since last fall—poses a host of dangers, including inflation risks. The Fed says it has the tools to stop an inflationary surge, but its new regime promises a tardy response. Late by design, the Fed would have to tighten policy more to stop an inflationary surge.

Kevin Warsh, a former member of the Federal Reserve Board, is a distinguished visiting fellow in economics at Stanford University’s Hoover Institution. (Published in the WSJ)

Since 2012, our inflation rate has been around 2% or under. But in April, it was announced that our inflation rate had ticked up to 4.2%, and it may keep going up. This is a problem because when the inflation rate rises, which can happen when the federal government prints money to keep up with a massive spending increase, our dollars have less purchasing power and prices go up.

If you’re looking to remodel your kitchen, buy a bigger house to fit your family, or take a road trip this summer, you should expect to pay more to do those things than you otherwise would have just last year or in 2019.

Everywhere we look, prices are rising…

I’ll be fighting to curb inflation and for policies that promote fiscal sanity. The strength of our economy depends on it.

Ted Cruz, junior senator from Texas and a Republican. (Published in the Dallas Morning News - $)

LIBERTARIAN VIEW (separate from the right,appearing here due to current format restraints):

Prices are rising, government spending is soaring, and trillions of dollars of new money appears as if by magic. It’s all intended, we’re told, to sustain the economy through the pandemic and then get individuals and businesses back on their feet as COVID-19 fears retreat. But many observers can’t help but wonder if rising prices are a sign not of a country returning to health, but of money losing its value in a world starting to suffer a renewed bout with an old enemy of prosperity: inflation…

The Biden administration isn’t quite dismissing inflation worries, but it is downplaying them and putting them in the context of a return to normalcy after prices for many goods collapsed when demand disappeared during the pandemic…

Even with relatively low inflation, that fall in the purchasing power of money can sneak up on you, eroding the value of any currency you hold. That’s why the 2021 dollar will buy only about half of what a dollar would purchase in 1990. A sudden inflationary surge erodes the value of money even more quickly, eating into people’s income and savings.

J.D. Tuccille, Reason