Like Lieutenant Colonel Kilgore in Apocalypse Now, the experienced hands of the macroeconomic fraternity are today sat crouched, surveying the post-pandemic horizon, sniffing the soil: “I love the smell of inflation in the morning.”
And how!
They remember better that we, youthful then in their nappies, groping to understand the emerging inflation narrative then.
The only problem is:
No one is yet to distinguish between the necessary adjustment to a greater stock of outside money and HH wealth (due to the crisis) and perpetual flow of credit and spending that would thereafter be needed to deliver a persistently higher inflation rate.
The latter is possible, and a housing bubble could well be a down-payment to deliver it for a while.
But there are in any case macro-prudential policy tools to deal such imbalances.
Aren’t there?
And in any case, the policy debate ought to focus on allowing the ongoing price level increase to reasonably pass into wages—such that there is not a further impoverishment of those households least able to hold their own.
Holding up the real wage of lower income households has to be the minimal objective at this time. In which case, it’s not the second round effects that are a concern, but the third.
So, forget the “big names” with the “big voices” who project their views on the world. Focus on two facts.
A one-off wealth shock does not deliver hyperinflation, only a price level adjustment.
More elastic credit creation would create an inflation impulse.
And forget the “big names” and “big votes,” you have already been told:
Originally tweeted by General Theorist (@GeneralTheorist) on November 17, 2021.