goes to Jen Kirby at Vox.com. It is a fact that the U. S. is not alone in experiencing inflation. But Ms. Kirby’s piece at Vox.com attempting to explain it is oddly comical. I’ll cite a few examples.
First, she’s fixated on supply chain disruption as the only possible explanation:
Covid-19, which has wreaked havoc on global supply chains, gets a lot of the blame for this. “Underneath it all, the key theme is a Covid disruption,†said Gregory Daco, chief US economist at Oxford Economics. “That’s the key reason why we’re seeing inflationary pressures around the world.â€
Although there’s a hat tip to variation by country, she doesn’t develop that idea at all. It’s got to be supply chain disruption.
Then there’s this gem:
It turns out, the global economy can go a little haywire when a once-in-a-generation pandemic rolls around. The virus scrambled supply chains, squeezed off international travel, and shut down businesses and services. Now, even as the world is recovering from these shocks, Covid-19 is still surging and resurging, and combined with other disruptions — like climate-related events — supply chains are still trying to sort themselves out.
Since 1900 there have been pandemics in 1910 (cholera), 1918 (Spanish flu), 1957 (Asian flu), 1968 (Hong Kong flu), 2019 (COVID-19). Some classify HIV/AIDS as a pandemic, too. What do you notice about that list? The time that elapses between them is by and large a lot less than a generation although, in the case of Spanish flu, it was significantly longer. Certainly not a “once in a generation” thing. My claim would be quite a bit different. I think the time between global pandemics is getting shorter.
Then there’s the incessant “appeal to unnamed experts”. That’s a fallacious appeal to authority.
Let me offer a simple, fact-based explanation that explains much more than than Ms. Kirby’s supply chain disruption and, coincidentally, is consistent with Milton Friedman’s famous dictum that inflation is always and everywhere a monetary phenomenon. Here’s a list of government budget deficits by country. And here’s a list of inflation rates by country. Comparing those lists you will notice something interesting. Inflation is roughly proportional to the rate of the deficit, i.e. larger deficits mean larger inflation. So, for example, the U. S. ran a 15% deficit and is experiencing 6% inflation, Germany ran a 4% deficit and is experiencing 4$ inflation. and China ran a 6% deficit and is experiencing 1.5% inflation. I think that’s more than a coincidence. No, those are not perfect correlations. What in this world is perfectly correlated?
Yes, inflation is taking place all over the world because governments all over the world have done the same things in response to COVID-19: they spent more than they took in and used the spending to boost consumption.
As I pointed out recently in comments, monetary inflation is actually the only real inflation. Poor energy policy results in narrow price increases in energy and energy using activities. But its not inflation. And so on and so forth.
Separating the two is well near impossible. But that may be by design.
In your list of pandemics, the latest is the only one where governments took steps that would disrupt business, travel, and trade.
During the 1918 flu pandemic the federal government’s response was largely limited to delegating its response to the American Red Cross. State and local governments took a variety of measures including mask mandates. In San Francisco a health official shot three people for failing to obey the mask mandate.
Interstate and national travel was less of an issue a century ago but you are correct that the lockdown is largely a 21st century innovation.
I continue to remain skeptical of self-assured predictions about inflation and that definitely includes this particular writer.
Economics is really bad at prediction and I think that is particularly true in the case of inflation. We’ve already had the experts be wrong once when most said early this year that inflation would be a blip.
But I’m also skeptical of claims that this will be the 1970’s again, or that we are destined for a wage-price spiral. I think we just don’t know what will happen – some things cannot be predicted, especially given the limited an imperfect data we have along with the fact that psychology drives so much.