Inflation in a Time of Corona and War

Servaas Storm
Institute for New Economic Thinking, 2022
Level: advanced
Perspectives: Complexity Economics, Neoclassical Economics, Post-Keynesian Economics
Topic: Capitalism, Crisis, finance, labour, macroeconomics, money & debt
Format: Text
Link: https://www.ineteconomics.org/perspectives/blog/inflation-in-a-time-of-corona-and-war

The author discusses the various dimensions of the recent hike in inflation in the context of the United States and policy dilemmas around high inflation, GDP decline and unemployment.


Comment from our editors:

The text raises a critical position about the wage-price spiral debate and monetary policy tightening in the context of US. What should be the right monetary policy action now, if we have danger of stagflation? The author criticises some mainstream academic publications on the need for a relatively strong interest rate rise now to control price rise and thus to avoid future social costs of high inflation, in other words, a soft versus a hard landing. The debate is all about the costs to society when the Fed acts now and strongly vs when it acts more gradually. As to the sources of inflation in the US, Storm discusses the role of profit of large US corporations in the recent hike of inflation along the lines of supply bottlenecks. Apart from being ineffective on the supply side factors of inflation, strong monetary tightening may also cause a burst of the real estate and stock market bubbles and cause non performing loans problem of public and private households and corporations, as the indebtedness increased due to the long-lasting expansionary monetary policy until recently.


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