“Transitory” inflation is on its way


I don’t know what I would do without Paul Krugman and his unerring ability to get things wrong, but bless him, there he is again.

Krugman doesn’t get quite understand any of this, but he does come close. The issue between the classics and the Keynesians over why recessions occur was over whether they were due to structural imbalances or demand deficiency. We live in a world where lack of demand is now the accepted truth which Krugman does go on about, although of all things, by first noting the structural imbalances that now exist.

The pandemic really did produce an Austrian-style reallocation shock, with demand for some things surging while demand for other things slumped. You can see this even at a macro level: There was a huge increase in purchases of durable goods even as services struggled….

We’re finally having the kind of economic crisis that people like Hayek and Schumpeter wrongly believed we were having in the 1930s.

Of course, the reason we are in recession right now is because our governments have shut much of the private sector down as an act of policy. Entirely insane, and we will pay for this and in no uncertain terms, which Krugman even kind of notes in his very last line which is really the central point of this post.

And in case you’re wondering, the Fed, by accepting transitory inflation, is getting it right.

You’ve been warned. Inflation is on its way. What to do about it I have no idea. Our governments will eventually be coming after us for all the money they can put their hands on. Transitory of course means that this inflationary period will end, eventually, but when that might be is anyone’s guess. Saving us from the Chinese flu will not have come cheap.

2 thoughts on ““Transitory” inflation is on its way

  1. Pingback: “Transitory” inflation is on its way - The Rabbit Hole

  2. This sticking to the “bounce back” model, especially with regard to small business, shows just how lacking is the government’s understanding of private enterprise.

    As I learnt from you, Steve, from reading the old Cat – supply creates demand and not the other way around. Without jobs to earn a living from, there is no supply to create the demand that the govt mistakenly believes/argues will follow when(?)/if(?) the economy reopens.

    So there will be a big budget shortfall. And the govt will come looking for the money , whichever party wins the next election.

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