Inflation May Be On Biden’s Plate Sooner Than He Thinks

Businesses pulled back on investment as shutdowns curbed sales and those that experienced surges were uncertain about the shape and size of post-pandemic demand.


Crises like wars and nationwide natural disasters tend to disrupt entrenched household and business habits to accelerate the adoption of new technologies, products, and ways of doing things—in this case, work from home, ghost kitchens, Pelotons, streaming services, and the like. But by how much remains to be seen.

Assets such as shopping malls and downtown offices will be repurposed, and considerable sums will flow into the new green economy. Electric vehicles will require factories that churn out internal combustion engines be replaced by those that make electric motors and batteries. Armies of coders will replace many auto assembly workers, and Tesla could displace Ford or Chrysler.

As new money floods into the new economy, vacant storefronts, restaurants, and office buildings—and laid-off store clerks, waiters, and building engineers—in cities with high taxes and mediocre public services—such as Manhattan, Chicago, and Seattle—may be downsizing.

Construction and manufacturing elsewhere face acute shortages of workers, chips, and microprocessors, and prices for those and basic raw materials, such as aluminum, iron ore, copper, and cotton are rising.

Transitory price pressures

Fed Chairman Jerome Powell believes those will cause only a temporary jolt to inflation but the lessons from the oil crises of the 1970s indicates supply shortages tend to set off self-perpetuating cycles of inflation, as pricing pressures spread through labor and goods markets generally.

Paul Volcker, who took the helm at the Fed in 1979, tamed inflation by jacking up interest and unemployment rates. The sum of the inflation rate and the unemployment rate became Ronald Reagan’s misery index and cost Jimmy Carter a second term.

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