The point of Scott Sumner’s post is in its title: “100% of excessive inflation is due to bad monetary policy”. Don’t be put off by the weaselish “excessive”. Anything over 2% (the notional Fed target for decades) is excessive inflation. We presently have excessive inflation. And here’s a précis of his point:
The Fed’s job is to insure an appropriate level of demand. On occasion, it may be appropriate for inflation to exceed 2% for a period of time due to supply issues. But that’s no excuse for excessive growth in nominal spending. When inflation is higher than it should be for demand side reasons, it is always 100% due to bad monetary policy.
Most of the post is a recap of Ezra Klein’s interview of Lawrence Summers. To hit the high points:
- Blaming inflation on “corporate greed” is nonsense.
- The Biden Administration is taking steps to reduce aggregate supply which is the opposite of what it should be doing.
- There aren’t many things the administration can do to slow inflation.
Dr. Sumner’s suggestion is to kick Jerome Powell upstairs, appoint him Secretary of the Treasury, replacing him with Janet Yellen or Lawrence Summers.
He forgets it takes two to tango. The Fed bought all that government debt, so the government could spend.
Government=politicians. And Janet Yellen (WTF?). is all but an MMTer.
Blaming it all on monetary policy is incorrect. It requires both bad monetary policy and bad fiscal policy that caused the current inflation.
Quantitative easing by itself isn’t inflationary in that it increased the money held by banks. When treasury in turn borrowed that created money and spent it (stimulus) that is inflationary.
At this point, I think to fix inflation one needs to work on all 3 fronts, monetary policy, fiscal policy, and aggregate supply. But if personnel is policy; that requires replacing the Federal Reserve board, the Secretary of the Treasury, White House National Economic Council, majority of Congress (Republicans and Democrats), and Secretary of Commerce, Secretary of Energy, EPA adminstrator, Secretary of Defense, Secretary of State, and National Security Advisor.
Is that going to happen?
By the way, I don’t understand Dr Sumner’s suggestion. Biden chose to renominate Powell; (no doubt to avoid owning fixing the mess). And Yellen was an advocate of QE while chair of the Federal Reserve, cheerleaded the stimulus, and described inflation as transitory until it wasn’t credible.
Anything over 0% is excess inflation. 2% is the fed target. But over say 100 years, 2% inflation eliminates 85% or so of the value of the currency. And, of course, that is what has happened since the fed was set up.