A very interesting short article on inflation and the shortcomings of economics from Jayati Gosh (UMass Amherst) in Social Europe. Her core point – that economists, even progressive ones, seem to be caught in tunnel vision, which then becomes the baseline model for policymakers – struck a chord with me.
The issue she raises – that to deal with inflation, you must understand it first – cannot be emphasised enough. This is a real-economy supply-induced inflation cycle, not a result of overly expansive monetary and fiscal policy (where was the inflation predicted by the model after 2011?).
Suggesting that it can only be tamed through an engineered recession is therefore nonsense. Russia will not withdraw from Ukraine, China will not adopt a laxer Covid policy and produce more computer chips, energy costs will not miraculously fall, and generally the world will not become a more predictable place simply because the Fed and ECB raise interest rates and unemployment. The current ideas from economists and the responses by central banks are not much more than ‘looking for keys under the lamppost’ economics.