At the American Institute for Economic Research Gerald P. Dwyer digs into the numbers on inflation and finds that the estimates for 2021 are too low. The TL;DR version is that if the Consumer Price Index (CPI) does not increase at all for the rest of the year, it will have risen 3.34% for 2021. If the Fed’s preferred Price Index for Personal Consumption Expenditures (CPE) does not increase at all for the rest of the year it will have risen by 2.2%—above their target rate of 2%. If the PCI rises at trend it will have increased 6.6% for 2021 and the PCE rises at trend it will be 4% for the year.
Inflation hurts the poor, those on fixed incomes (seniors), and savers. Guess who it helps? People who invest in the stock market on borrowed money.
Exercise for the interested student: will an additional $3.5 trillion in federal spending increase prices, decrease prices, or have no effect?
An additional $3.5 trillion will increase asset prices, but some of those increases will affect production costs. So, there will be some increase in consumer goods prices, but presently, most of the increase in consumer goods is the result of COVID hysteria.
The inflation from COVID hysteria will be transitory to the degree production can return to the ante-COVID status, but some disruptions will be permanent. Thus, some of the transitory inflation will be permanent, and eventually, prices will stabilize, but higher.
The electrification fantasy will result in inflated power costs, and the increased cost to production will make the 1970’s stagflation seem quaint. You cannot create and maintain an all electric country without using fossil fuels, and those of us who remember the 1970’s know the result of artificially increasing those prices.
It is humorous, but tragic, that all the money Democrats are borrowing to lessen the wealth gap will be leveraged by the wealthy thereby increasing the gap. Really, how stupid do you have to be?
“Really, how stupid do you have to be?”
Well, we have a certain medical professional here who seems incapable of criticizing anything Democrat. Is it stupidity? I doubt it. Is it ignorance? In part. Its slavishness to the ideology. And this from the guy who used to blather on about cults…….
Maybe Dave should rethink a title of a post from a few weeks ago: Was Friedman Wrong?
I know that some here think my description of bad policy as evil is hyperbolic. Ignorant but benign motives is the preferred explanation. But I left Kansas long ago, and travel in different circles I guess. Trust in politicians is childlike. As a result, trust in good government is hopelessly naive. David Brooks aside………..
If by inflation price increases are meant they are almost never transitory. In econ-speak that’s “downwards price inelasticity”. They may reduce the size or the quality of the product but they probably won’t reduce the prices.
There’s another factor. It’s something I have observed but doesn’t seem to be generally recognized. Elected officials tend to conflate their own benefit with the public good, particularly over time.
I am not convinced anyone has a good record on predicting macro. Big cuts in taxes, cuts in regulations PLUS big deficit spending and we got the same slow growth we had with Obama. I dont know if the budget will pass or if it will give us harmful inflation. What i have said several times is that I think we should stop using the budget to try to accomplish ideological goals. Match revenues to expenditures. In times of crisis deficit spending is OK but you need to make it up afterwards. We are not in a crisis now.
Steve
That’s basically what Keynes taught.
Over the period of the last 13 years we have run roughly half trillion deficits every year. In six of those years we have run trillion dollar deficits or more. That can’t be fixed just by raising marginal tax rates or by cutting defense spending.
I believe that we should be cutting back on defense spending but I also believe that we should be limiting what our military is called on to do, something neither any president or Congressional leadership seems willing to do. I think we could cut military spending by a couple of hundred billion dollars a year without being less safe. We would have to abandon a number of long-term policy objectives, however.
It means, among other things, cutting back on health care spending.
I agree with Dave’s statement about politicians “conflating their own benefit with the public good.†This tendency is seen in people aligning themselves with all parties. However, IMO, it is especially accentuated in the progressive wing of the democrat party. These politicians are completely out of touch with the needs and wishes of mainstream America – all the while virtual-signaling that everything they do is for the highest and best good. A good example of this is how they have virtuously named the S 1 bill the “We The People†Act, which, in reality, literally guts any oversight or integrity our elections still have.
@steve
I am going to go real slow, and maybe, you can explain it to your Democrat buddies.
The $3.5 trillion that will need to be borrowed does not exist. It will not decrease the money supply by $3.5 trillion. The economy will not be $3.5 trillion poorer. The money will be created from thin air, and the people who create the money will be $3.5 trillion richer.
This is how the Modern Monetary System (MMS) works. It is not a matter of “spending money to make money”. Money is created by leveraging existing money. Those with enough money to be leveraged will increase their wealth by that amount, period.
If you and your buddies actually cared about wealth inequality, you all would work to decrease the national debt. Decreasing the national debt will destroy the money it created. This will decrease the wealth gap. The money used for leverage will still exist, and it can be invested elsewhere.
If you do not believe me, ask Dr. Stephanie Kelton. That is the foundation of MMT, but of course, MMT proponents forget to mention it. Or, they are too stupid to get it. You decide.
One of the things about MMT is that they teach that you can expand the money supply indefinitely with impunity as long as you do it more slowly than aggregate product grows. I agree with that. I think it’s tautologically true. As I point out when the subject comes up, that was one of the implications of the things I learned in the banking class I took more than 50 years ago.
However, most people who think they’re preaching MMT forget that part. That’s what I refer to as “folk MMT”.
They must have stopped teaching that, years ago. MMT is tautological because the Modern Monetary System is tautological. In my opinion, the proponents of folk-MMT are even dumber than the proponents of folk-Keynesianism.
Keynes is based upon the pre-1968 monetary system. The “gold cover” limited money creation, and the much of the debt was being removed from the economy. This, in-turn, limited the wealth gap.
When Glass-Steagall was repealed, money creation became unlimited, and thus, Phil Gramm is the father of MMT.
MMT is too cute by half, but then most of it devolves into folk MMT. You can print as much money as you want with no consequences. So yes, it seems pretty obvious that if you always grow the economy faster than the debt you are probably OK (except for the fact that life does not work that way.)
To be clear, Think it a bad idea to cut taxes just because you think it will make the economy grow or it will cut debt. To increase govt spending just because you think it will make the economy grow. Decide what you want the govt to do then provide appropriate revenue. Helps to determine if people really value what govt is doing. As it stands people get free services/subsidies/whatever without paying for them. People tend to like that. It has helped the GOP a lot with their cut taxes but dont cut spending policies.
Steve
I would do it a bit differently. First, decide on an objective. Then identify efficient means. If you can’t, give up on the objective. Then consider the run-on effects. If, given reasonable assumptions, your plan still works, go ahead. Otherwise stop pushing on the string.
My point is that neither deciding nor good intentions are enough. You can’t make a bad plan into a good plan by force of will.
That’s the problem with “equity” in the sense of equal outcomes—the run-on effects are worse than the unequal outcomes.