Three Things I Think I Think – Learning From Bad Inflation Takes

The great thing about Twitter is that the instant you put a bad take into the universe you will get roasted for it. The bad part about Twitter is that the instant you put a bad take into the universe you will roasted for it. I kid, kind of. There’s actually a lot to learn in saying the wrong things and I’ve surely benefitted from putting my wrong opinions out into the universe only to have someone correct me. So I guess you could say that there’s no such thing as a stupid take, only stupid responses. Or something like that. Anyhow, here are some bad takes on inflation that I think are learning experiences. And don’t worry, bad inflation takes don’t have a political bias so you should be able to find something to confirm your preferred political bias in here:

1. AOC on inflation. AOC was on CNN explaining why inflation isn’t really a worry and why we actually need even more fiscal policy to solve the inflation problem. Specifically, she said:

“If this was an overall inflationary issue, we would see prices going up in relatively equal amounts across the board no matter what the good is.”

This interview was pretty popular on the Internet. But this comment is just not true. In fact, inflation rarely occurs evenly across goods and services. For instance, in the 1970s the price of oil and food was rising disproportionately relative to other goods and services. But that inflation was still very damaging. Now, today is nothing like the 70s for reasons I’ve mentioned before, but we shouldn’t downplay the fact that overall prices have been rising for reasons that are more complex than just supply chains. And that’s where AOC’s comments are misleading and somewhat disconcerting. She’s trying to peg the inflation issue as a purely supply-side issue. As if the massive fiscal stimulus programs didn’t contribute to higher than otherwise aggregate demand.

Now, she’s not wrong that there are supply side issues. After all, corporations were preparing for a collapse in aggregate demand due to COVID. What they didn’t predict was that the federal government would spend $6.5 trillion and actually create aggregate demand that was even higher than the pre-COVID environment. So, yes, there were supply chain issues. I predicted all that as soon as COVID hit. I also predicted that core inflation would hit 3-4% specifically because aggregate demand from fiscal policy was going to be humongous. We don’t need to hide from that reality and I don’t think it helps to frame this situation as if fiscal policy didn’t contribute to the current inflation.

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Disclaimer: The content in this article is provided as general information only and should not be taken as investment advice. Article content shall not be construed as a recommendation ...

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