“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 will be anyone’s guess. Saving us from the Chinese flu will not have come cheap.


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MatrixTransform
September 5, 2021 12:10 am

If I recall correctly, there were some here 18mo ago adamant that this was all deflationary.

My whisky costs 15% more and I’m factoring into my quotes the threats to my livelihood

just saying it out loud sounds inflationary to me

thefrollickingmole
thefrollickingmole
September 5, 2021 8:57 am

We have been told the trucks/ dollies/trailers we have been quoted on are going up by 20% in one hit due to steel prices.

Mother Lode
Mother Lode
September 5, 2021 9:27 am

The transitory inflation will not end for a very long time.

Every time the government tries to fix it they will make it worse because they will be going about under flawed assumptions and never admit that it was them that made it worse, which would be the first step to correcting the course.

Mother Lode
Mother Lode
September 5, 2021 9:42 am

If demand was the key to economic growth then Africa would be burgeoning – every bobble-headed skeletal child I see looking at me through the TV would be a Mercedes Benz.

(Okay, I know that in all fairness I am conflating economic demand and mere want.)

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