Guest Contribution: “Inflation is Back, But the 1970s Aren’t”

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy  School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared at Project Syndicate.

Are the US and other advanced countries experiencing stagflation?  Stagflation is the unfortunate combination of high inflation with low growth in output and employment that characterized the mid-1970s.  Are we back in that decade?

No.  At least not the US. What it is experiencing now is simply (moderate) inflation, without the stagnation part.  More like the 1960s than the 1970s.

It is true that the US headline CPI inflation rate reached 6.2 % over the 12 months to October, the highest since 1991.  Few are still forecasting an early return to 2 % , the Fed’s long-run target.  Inflation is also the highest in 10 years in the UK (4.2 %) and the EU (4.4 %), though it remains low in Japan.  12-month inflation is 4.1 % in the eurozone, the highest since a peak in July 2008.  (All these regions have lower – but still elevated — inflation rates if one uses the core measure, which takes out fast-rising food and energy prices. US core inflation is 4.6%.)

But the US economic recovery since the pandemic recession of 2020 has been strong, judged by GDP and labor market indicators.  This is not the stagflation of the 1970s.

*   *   *
1. Why has inflation risen in 2021?

Inflation is the natural result when demand increases faster than supply.

Rising American demand for goods (which had been pent-up when Covid kept people home), is confronting a constrained supply of goods, resulting in price inflation.  The supply constraints include port bottlenecks, chip shortages, and other supply chain disruptions, particularly for in-demand durable goods. Meanwhile, rising demand for labor is confronting a supply of labor constrained by the lingering effects of the pandemic (particularly for services), which has resulted in wage inflation, especially in the lower parts of the wage distribution.

GDP in the US has already surpassed pre-pandemic levels.  In contrast, GDP in many other countries, including the Brexit-impacted United Kingdom, has not caught up with where it was before.

It is true that US real GDP has yet to attain its pre-pandemic trend.  The evidence suggests, however, that the reason for this remaining shortfall in output is not inadequate demand, but rather capacity constraints. They are probably temporary.

US unemployment is down a lot.  From 14.8 % in April 2020, it declined to 4.6% last month, October 2021, which would have been considered close to full employment during most of the last half-century.  By contrast, unemployment reached 9.0% in the stagflationary time of May 1975 (on its way to 10.8 % in November 1982).  Moreover, other current indicators point to a tighter labor market than the unemployment rate does: the ratio of job vacancies to unemployed workers is the highest on record, as is the quit rate,  reflecting confidence that workers can find new jobs. Wage growth is also up.  (Workers at the lower end, in particular, are pulling ahead of price inflation.)

Only Labor Force Participation remains substantially depressed.  Some of the decline is due to retirements.  Much is due to Covid, still a big factor in the economy.

What is the evidence that the problem is not demand, which monetary and fiscal expansion could do something about, but rather inadequate supply, which they cannot? For one thing, nominal GDP has attained its pre-pandemic long-term trend, suggesting that supply is now the constraint on real growth and that demand is about right.  For another thing, direct measures of domestic demand, like real personal spending or retail sales, have also attained their long-term pre-pandemic trends.

When demand exceeds supply, the results include a trade deficit and inflation. That is basic macroeconomics.  We are currently witnessing both.

Though it may not seem like it, these are, in a sense, good problems to have (taking the pandemic as given).  It is clearly better to have demand and supply both recovering, albeit with demand recovering more quickly, than to have neither recovering, with economic activity and employment depressed as in 2020, when the pandemic induced a sharp recession, due to declines in both supply and demand.  The US is way ahead of where we thought we would be a year ago, and ahead of other countries.

Monetary policy can do nothing about the capacity constraints. Nevertheless, it is not too much to hope that they will melt away over the next year, as ports unclog, supply chains re-form, choosier workers successfully match with jobs that they actually want, and supply responds to high prices in those particular sectors where excess demand is acute. As a result, economic activity may catch up with its pre-pandemic trend before long.

*   *  *
2. Policy-makers won’t repeat mistakes of the 1970s

Rather than resembling the 1970s, today is perhaps more like the late 1960s, which was another time of rapid growth and tight labor markets. Consumer inflation reached a moderate 5 ½ % in 1969.  But many worry that today’s moderate inflation will eventually get built into expectations, set off a wage-price spiral, and soon turn into the high inflation of the 1970s.  This is not impossible.  We don’t want to dismiss the lessons of the past by remaining complacent about inflation.  (By analogy, supporters of the US wars in Afghanistan and Iraq, condemned to repeat the mistakes of the past, assured us that the Vietnam War was not a relevant precedent.)

But it is quite unlikely that our policy-makers will in fact repeat the mistakes made in the late 1960s and early 1970s.  These mis-steps began with Vietnam-War-era increases in government spending, without tax revenues to pay for it.

The errors were multiplied in the early 1970s.  In 1971, Fed Chairman Arthur Burns and President Richard Nixon responded to rising inflation with a combination of rapid monetary stimulus (to secure the president’s re-election) and doomed wage-price controls (to artificially suppress inflation in the short run).  An overheating economy blew the lid off the boiling pot a few years later, and inflation shot above 12 per cent.

Incidentally, 1971 was just the first in a series of episodes where Republican presidents have pressured the Fed to ease monetary policy. Democratic presidents over the last 50 years have refrained.

It is true that the Fed was overly optimistic in its forecasts for inflation this year. By that, I mean that the Fed (like many others) was expecting the increase in inflation to be smaller and more transitory. (It takes an effort to remember that, until recently, “optimistic about inflation” meant expecting inflation to be higher, not lower.)  Larry Summers and Olivier Blanchard got it right back in February of this year, correctly predicting that rapid growth would lead to inflation.

Even though the Fed turns out to have been off-target in its inflation forecasts, it has arguably not been far off-target in its actions. True, the central bank did not expect to start tapering as early as November 2021. But it responded appropriately to the incoming data — on inflation, as well as on the strength of the economy — by adjusting the timing of its plans.

The Fed’s mistake in forecasting its own policies does not appear to have done any harm.  One could imagine that securities markets might have crashed when the Federal Open Market Committee announced tapering on November 3.  But markets hardly reacted at all, indicating that the Fed had successfully communicated its re-thinking, in contrast to 1994 and 2013, when the markets failed to anticipate the start of tightening cycles.

If the Fed – under newly re-appointed Chair Jay Powell –starts raising short term interest rates in the middle of 2022, or even slightly sooner, it won’t catch markets by surprise. (Not that the Fed’s job is to keep stock market investors happy.)

*  *   *
3. What can Biden do about inflation

What can the White House do in response to the highly unpopular recent rise in inflation?  Its tools are limited. The Biden Administration has already intervened a bit to help get ports and other supply chain logistics unclogged.

Most sensitive politically is the price of gasoline, which is back up near its levels of 2011-2014. There is not much the President can do about the world price of oil.  But at least he will not do what Trump did on April 2, 2020 (in order to help out American oil producers), which was to tell Saudi Arabia that OPEC must cut oil output or else the US would withdraw troops from the Arabian peninsula.

Further vaccination would increase the supply of labor, through several possible channels.  One channel would be to keep children in school, allowing more parents to go back to work.  Another channel is to alleviate fears of infection in the workplace.  We hear that vaccination mandates could result in some employees quitting.  But the vaccine skeptics are out-numbered by those workers who understand the benefits and should be attracted by the idea of rules to make their work-places near Covid-free.  It is hard to know, however, what more Biden could do to convince the unconvinced.

A good, but neglected, way to moderate inflation would be to let  imports come into the country more easily.  They are a safety valve for an overheated economy.  Trump put up a lot of tariffs – including on aluminum and steel, and everything Americans import from China. Tariffs raise prices to consumers, sometimes directly, as with washing machines, and sometimes indirectly, as with steel and aluminum, which are important inputs into autos and countless other goods.  In some cases, the legacy of Trump protectionism has contributed directly to current disruption of supply chain logistics, such as the high tariffs on imports of chassis, which are the wheeled frames that carry shipping containers.

“Buy American” is attractive as a political slogan.  But it is a recipe for worsening inflation.

Biden should be able to get China and other countries to reciprocally lower some barriers against the US, in return for removing US tariffs. But with or without foreign reciprocation, trade liberalization could bring some prices down quickly.  As Menzie Chinn points out, reducing tariffs would have a bigger anti-inflation today than in the 1970s, because trade is a much larger share of the economy now than then.

Facilitating immigration (preferably orderly and legal) could alleviate shortages of workers in some sectors.

Biden’s “Build Back Better” social spending bill, often identified with costs around $2 trillion, passed the House of Representative November 19 and awaits a Senate vote.  Republicans argue that such spending will add to inflation. The cost numbers are misleadingly large. (1) They are spread over 10 years; annual costs are much smaller. (2) Some rising spending would be expected in a growing economy anyway.  (3) The White House proposal is to pay for the social spending bill fully, by funding IRS enforcement and raising taxes on corporations and on citizens earning more than $400,000.

Some argue that the new spending would, on net, work to raise inflation, e.g., because a dollar of spending raises demand by more than a dollar of tax revenue reduces it.  Others argue that the net effect on inflation will be beneficial (particularly in the longer run), because many of the programs, such as universal quality pre-school, operate to increase supply.  Both arguments are reasonable. Regardless, the infrastructure spending and social spending should be judged on their own merits.  Inflation is explained, not by this legislation, but by rapid recovery from the Covid recession.


This post written by Jeffrey Frankel.

63 thoughts on “Guest Contribution: “Inflation is Back, But the 1970s Aren’t”

  1. pgl

    A lot to digest. The analogy to the late 1960’s seem on point but there were two beautiful digs at the previous Administration’s cast of clowns starting with:

    ‘There is not much the President can do about the world price of oil. But at least he will not do what Trump did on April 2, 2020 (in order to help out American oil producers), which was to tell Saudi Arabia that OPEC must cut oil output or else the US would withdraw troops from the Arabian peninsula.’

    I wonder how much Wilbur Ross and Peter Navarro made by buying up oil stocks last spring.

    And of course getting in another dig at Trump’s stupid trade war was priceless.

    1. JohnH

      “ In the second year of a pandemic that began by wiping out 20 million jobs, American workers are doing surprisingly well. It’s just that American business is doing even better.

      In the past two quarters, U.S. corporations outside of the finance industry posted their fattest margins since 1950 — one reason why stock markets keep hitting all-time highs.”

      Once again, Frankel beats the drums for rolling back the Trump tariffs, a fairly minor contributor to inflation, but ignores corporate price gouging. Interestingly, he specifically cites washing machines…Menzie linked to a study that showed that the oligopoly structure of that market was a contributor (largely ignored) to that industry’s ability to pass through some of the increased washing machine costs to consumers.

      Question is, why are so many economists so silent about corporate power as it relates to the current inflation? I would think that this would be a perfect teaching moment for the public.

      1. pgl

        Good grief. Maytag has more oligopoly power when it is shielded from Korean competition than when we have free trade with South Korea. Try walking into a Lowe’s sometime and see how those Korean washing machines are a very viable alternative to an overpriced Maytag.

        Your claim that economists ignore these matters is just another one of your really stoooopid lies.

        1. JohnH

          Maybe pgl should read the piece that was linked to a few months ago…and learn about the contribution of oligopoly to washing machine prices.

          But pgl thinks that oligopolies are just warm, fuzzy little creatures that would never, ever think of price gouging!

          Meanwhile investment companies are advising their customers to look for companies with pricing power.
          “In our view, successful companies must have pricing power as an arrow in their business quiver to effectively navigate this inflationary wave. While pricing power has always been important, in today’s environment, it has become critical.”

          And there are plenty of choices. And it’s no coincidence. Since the 1980s a major strategy of corporations, following the lead of GE, the Boston Consulting Group, and Michael Porter, has been to dominate a market or exit. The only thing standing in the way of monopoly was the DOJ, so most companies had to be settle for oligopoly, preferably being the pricing leader or a as a consolation, a follower living happily profitable under the leader’s price umbrella.

          Once these companies get a taste for pricing in anticipation of inflation, who know how much they’ll exploit their advantage.

      2. pgl

        I bet Jeff Frankel has read this 2008 AER classic and I guarantee you have not:

        Contrary to your serial garbage – economists like these have studied market power and they provide evidence that domestic oligopolies are generally better at getting higher tariffs to stifle foreign competition.

        Which is one reason economists like Jeff Frankel advocate the use of free trade to promote competition. But nooo – JohnH on his high horse abhors free trade. Which basically means Johnny boy that you are actually promoting oligopoly power. But I guess your excuse is you are too damn stupid to realize WTF you are babbling about.

      3. pgl

        Let’s help poor JohnH shop for a reasonably priced washing machine with this list of the top 10 brands:

        Notice only 3 are American. Oh wait Maytag merged with Whirlpool a while back and Kenmore might be hard to find now that Sears is bankrupt. Yes if we keep those Trump tariffs that JohnH so loudly endorsed – there is little competition.

        But wait – 2 Korean brands, 2 German brands, an Indian brand, a Swedish brand, and a Japanese brand. Lots of international competition!

        Oh – JohnH hates free trade so I guess Santa is going to deliver him a huge bill this Christmas for his American made washing machine. Oh well.

        1. JohnH

          Thanks pgl. I bought a new washer and dryer three years ago.

          You might be enjoy and be enlightened by the following: “ This (washer and dryer) market is an example of the “oligopoly problem.” In their recent book, “The Myth of Capitalism: Monopolies and the Death of Competition,” authors Jonathan Tepper and Denise Hearn define the oligopoly problem as when the government, “by allowing extreme industry concentration … has essentially guaranteed oligopolies can act like monopolies and encourage outright and tacit collusion.”

          In this instance, one would expect that the Whirlpool and Maytag brands would hold the line on price increases. Not so, according to the “Nash Equilibrium,” a game theoretic concept stating that among different competitors, the optimal solution is to choose tacit cooperation rather than embrace competition. This tacit collusion tends to maximize the highest return for “competitors” while minimizing their maximum loss. The downside is that it also leads to oligopolistic companies’ acquiring monopolistic financial returns, which subsequently leads to reduced manufacturing output, and ultimately lower consumer welfare.

          Not only did Whirlpool (and its Maytag brand) not take advantage of a pricing strategy opportunity to hold-the-line on washer and dryer prices, they strategically (and tacitly) acted as any member of a highly concentrated oligopolistic industry would.”

          Interesting that Frankel advocated reduction of Trump tariffs, but somehow (mysteriously) missed the oligopoly problem contributing to inflation.

    1. paddy kivlin

      how did aaron rodgers get out of the game yesterday?

      seems he walks off with a win and now has 2 weeks to work out his covid toes.

  2. ltr

    As for restoring and working on mutually beneficial trade and prices with China, the Biden administration has continued the trade limitations and sanctions of the Trump administration and has been repeatedly adding economic sanctions.

  3. pgl

    Remember Trump’s fake doctor Ronny Jackson? He is now a Republican Congressman from Texas and is as crazy as ever. It seems the new line is that Omicron is a fake virus cooked up by Democrats to steal the next election:

    Now other Republican nutcases are saying it is Biden’s plan to slow the economy masking those supply chain problems. I would say “One Flew Over the Cuckoo’s Nest” time but count on it – our Usual Suspects will chime in endorsing this garbage.

  4. ltr

    There is not much the President can do about the world price of oil….

    [ Again, there is reason to at least examine American sanctions on Venezuela and Iran. An increase in international supply could well be gained. ]

    1. Barkley Rosser


      Actually these probably have not much effect. To the extent they can produce, most of their oil is getting out, and thus entering global supply. Does not matter that US and some allies are not buying any. The sanctions may have more effect on Iran, although its oil is getting out to China very much. However, for Venezuela, most of their problem is internal incompetence at managing their oil industry.

      I do support the US reentering the JCPOA with Iran and ending the sanctions, but I do not expect that affect oil prices all that much.

      1. JohnH

        Time to do your homework: “ Iran to return to pre-sanctions crude output until March: NIOC chief” An addition of 1 million barrels a day ought to help Biden reduce gasoline prices, except that the extra production is probably destined for China and will not hit the spot market.

        MBS recently indicated OPEC might increase production by 400 million barrels/day which he thought would alleviate prices. It would also make investment in pgl’s beloved,environmentally destructive shale less attractive.

        1. pgl

          An additional one million barrels a day? Dude – do you have a clue how large the world oil market even is? Damn – your stupidity just burns.

          1. JohnH

            What’s your point?Saudi Arabia’s MBS thought that only 400,000 barrels a day would pacify the market

            Time to sell your shale stocks?

        2. pgl

          “It would also make investment in pgl’s beloved, environmentally destructive shale less attractive.”

          I have never advocated using shale oil and you know it. Now stop this stupid lying of yours and ask CoRev out on that hot date he is seeking with you. Like I suggested to CoRev who really wants “drill baby drill” that the dinner conversation between you two clowns will have the waiter falling on the floor with laughter.

        3. Barkley Rosser


          But if Iran did not supply oil to China then China would be buying it on the spot market. It really is a unified world market, even though there odd gaps in prices across parts of it, such as the one we see between Brent and WTI crudes.

      2. pgl

        Try reminding JohnH about the timing of his incredible flip flopping.

        Back in the day when he claimed OPEC was crushing shale oil with their low prices, market prices for oil had gone above $80 a barrel.

        But then this IHOP pancake chef flipped to complaining about high prices thinking Iran alone could fix it. Funny thing – when was on this soap box, you were pointing out that oil prices had declined below $70 a barrel.

        It seems while he is good at contradicting himself – JohnH sucks at checking market data.

    2. CoRev

      Anne, or remove the US sanctions on exploration and production of oil and gas, not just Iran or Venezuela.

      1. pgl

        What restrictions CoRev? Or are you in total drill baby drill mode? As if fracking makes our air cleaner – right?

        1. pgl

          I suspected CoRev would duck my question on what alleged restrictions the US has on oil production so I went searching to see WTF this Trumpian tool might be suggesting and found this discussion of proposed methane emission regulations:

          Notice two things. CoRev’s boy Trump rolled these regulations back. Now if oil prices are now high – it would suggest that Trumpians zealous desire to make our environment more lethal failed to bring down the world price of energy.

          Yes Biden has proposed to return to sensible regulations which of course angers climate change deniers like CoRev. I guess this troll is so angry he thinks these proposed regulations are already in place. Of course they are not but don’t let that stop CoRev for blowing his usual smoke!

          1. paddy kivlin

            comical banter back and forth on energy…..

            would be funny if your parroting of climate crisis homilies and ‘sacred models’ aka scripture were lass obvious.


            mac jones is my new second favorite active qb behind brady (even though he took semi retirement in florida)

            harvard is on the wrong bank of the charles. they do not make cheese at industrial scales in southie….

          2. CoRev

            PGL is so dense and in the deepest denial that he can/will not see the results from Biden’s energy policies. Dense because he thinks “drill baby drill” had no effect on prices and the reduction in GHGs under Trump. Denial because he thinks Biden’s and his party’s drilling restrictions, exploration restrictions, production restrictions and distribution restrictions have no effect on restriction supply raising prices. Cognitive dissonance is rampant with PGL.

            And he claims to understand economics!? Nah. He’s just a slave to his unicorn-based “the sky might just be falling” environmental dreams.

          3. Menzie Chinn Post author

            CoRev: As demonstrated by your many blatantly incorrect assertions regarding both economics and statistics, I hardly think you are in a position to criticize somebody else’s understanding of these matters.

          4. CoRev

            Menzie: “As demonstrated by your many blatantly incorrect assertions regarding both economics and statistics,…” but we are not talking about either. We are talking about Biden’s 1st year policies and their impacts.

            Y’ano, those things you are trying to paper over with all “it’s not as bad as you think” articles, as opposed to the many Trump is worse than you think articles in his 1st year.

  5. AS

    Professor Frankel,
    Different definitions of inflation make it difficult for amateurs to understand what inflation is. Living through the 1970s and 1980s, I thought I had an idea about inflation from Milton Friedman, but now, not so sure.
    You defined inflation below.
    “Inflation is the natural result when demand increases faster than supply.”
    In the past, I thought supply-demand increases were separate from inflation or deflation if supply exceeds demand.
    Brookings defined inflation below.
    “Inflation refers to changes over time in the overall level of prices of goods and services throughout the economy.”,and%20services%20to%20previous%20prices.
    Comments respectfully submitted.

    1. Barkley Rosser


      As I suspect Prof. Frankel is not going to answer you, I shall try to do so.

      No, there have not been competing definitions of inflatoin ever. The one you quoted from Brookings is the definition, and that was the definition back in the 70s and 80s as well, no change.

      The statement you claim to be Frankel’s definition is not a definition. It is a statement about the cause of inflation, that it arises when aggregate demand outstrips aggregate supply. What you may be remembering from FRiedman is that he said that it was all about money supply, but his mechanism of how that worked was for changes in money supply to change aggregate demand.

      I hope that this is helpful, and also that I am not stating things Prof. Frankel would disagree with.

      1. AS

        Thank you. Yes, I was thinking about Friedman’s comments about money supply. I may not be clear in my understanding about the mechanism you mention “for changes in money supply to change aggregate demand” thus causing inflation. I have a difficult time understanding how an “excess” increase in money supply is not a cause for inflation as seems to be suggested by Mr. Heller’s WSJ letter to the editor on 11/26/2021. Not trying to create a battle about Judy Shelton, just trying to understand what I thought I knew about inflation.

        “In ‘The Fed Needs to Remove Its Blinkers’ (op-ed, Nov. 17), Judy Shelton correctly argues that the Fed should set policy ‘unencumbered by earlier assumptions and ambitions corresponding to a different economic and political environment.’ Nevertheless, the Fed should also pay attention to old truths enunciated by Milton Friedman and others, namely that inflation is always and everywhere a monetary phenomenon.

        According to St. Louis Fed data, the money supply (M2) increased by an average rate of 20% in the two years ending this past October. It is therefore no surprise that inflation is surging right now and that there is more to come. Yet in all the Federal Open Market Committee statements published this year, the word ‘money’ is not mentioned a single time. How can the Fed conduct a sensible and coherent monetary policy without ever looking at money?”

        Robert Heller
        Belvedere, Calif.
        Mr. Heller was a governor on the Federal Reserve Board (1986-89).

        1. Barkley Rosser


          I had forgotten that Robert Heller was such a hard core, old-fashioned monetarist a la Miltion Friedman, who, as I noted, himself abandoned that view before he died. Heller was on the Fed board just after the end of when that old fashioned monetarism still held, which seems to have been about 1985, or thereabouts.

          So, Friedman focused on the quantity equation, MV = PQ (or PT, if you prefer). For one to be able to focus on that equation as supporting that “inflation is always and everywhere purely a monetary phenomenon,” is for both V to be basically stable along with Q (or T) being unaffected by M. In such a case, M drives P directly and absolutely.

          But around 1985 it seems that V destabilized due to various changes in the financial system, with it simply becoming even less stable since. We have seen massive increases in various measures of M recently, but changes in P have not remotely reflected those increases. I am not sure what has inspired Heller to drag out this old and tired version of monetarism that has not been functional in nearly 40 years.

          Anyway, even in that old simply Friedmaniac world where M drove P absolutely and totally, it was and remains that this can be seen as operating by expanding aggregate demand. There is no contradiction. M drives P does not mean AD does not drive it also.

    2. Moses Herzog

      My thought on it, without really disagreeing with Professor Frankel, is that, yes, you can state that Summers and Blanchard were “correct” about inflation. But the problem with making that statement, is that it implies (certainly in Summers’ case) that the policy steps taken were incorrect. When in fact, there is nothing to exhibit that the policies enacted did anything but make people’s lives better. Summers can run around, as all narcissists do, declaring his victory lap. But is Summers telling us that federal gov infrastructure and stimulus drastically increased the price of eggs, bread, denim etc?? No one in their right mind believes that cr*p. So Summers is in fact wrong, because the inflation levels he predicted have no bearing on whether the stimulus policy enacted was wrong, because the slow restart on supply chains and/or GVC is what caused most of it, and increasing stimulus/infrastructure does not slow down supply chains or GVC. Summers thinks the inflation rate scorecard proves himself right, I have no doubt of that without having watched the arrogant prick over several months, I have no doubt he declares himself correct—but he is not, because supply chains and GVC are causing 80%+ of the inflation, NOT federal stimulus/infrastructure outlays.

    3. Jeffrey A Frankel

      I would DEFINE inflation the same way as the Brookings passage you quoted (rising prices). The sentence of mine that you quoted was not a definition, but a characterization of what CAUSES inflation.
      PSP As Barkley Rosser says

  6. paddy kivlin

    a few nits: gasoline and labor participation.

    biden and granholm have asked opec+ and whoever else sells oil on the exchanges to raise output, unlike trump!

    other differences usa crude supply is down 5 to 6% yoy. biden could encourage more domestic supply….. and stock are all drawn/reduced yoy.

    crude imports are up 14+% yoy…. there is a supply issue with energy.

    he does mention the aging population…..

    while 24 to 64 labor participation is not that far off from recent experience.

    rising wage pressure is possible.

    while blaming the virus and relying on vaccines is a matter of faith…..

  7. JohnH

    “ California ship pileup still piling up — but out of sight, over horizon… The logjam hit a peak of 86 container ships offshore on Nov. 16, according to data from the Marine Exchange of Southern California. A week later, it was a mere 61, the lowest since early October.
    Problem solved?

    Far from it. The waiting container ships are still out there — more of them than ever. It’s just that more are over the horizon, where you can’t see them, thanks to the successful implementation of a new queuing system that began last week.”

    The more things change…

  8. Todd Ramsey

    A point not mentioned, probably because it’s so obvious the author assumed everyone knows it.

    The Fed knows now that monetary policy causes inflation. They did not know that in the 1970s. Does anyone else remember Whip Inflation Now buttons?

    By the middle 1970s, Friedman and Schwartz’s Monetary History was just beginning to be understood and accepted by a few mainstream economists. Our understanding of the role of monetary policy in causing inflation is light years ahead of where it was 50 years ago. Today’s Fed Governors know better than to let a persistent inflation set in.

    1. Barkley Rosser

      Todd R.,

      You are a bit out of date on all this. The Fed had a pretty good idea what caused inflation inthe 1970s. As it is, the monetarist view of what causes inflation basically fell apart in the 1980s, with even Friedman himself admitting not too long before he died that the relationship between the money supply and the price level had broken down, and done so quite completely. Menzie has posted on this some in the last year of so, and if anything that relationship is even more kaput. M does not remotely drive P, and has not for a long time.

      As it is, I do think that between the Fed and some other actors inflation will not get out of control and is indeed probably already heading down, as Menzie has shown on a month to month basis recently. It probably peaked in the summer, although on a year to year measure it has continued to rise. But the recent fall of crude oil prices after the discovery of the Omicron Covid variant is a further sign that inflation will be coming down both more rapidly and more obviously than it already has been .

      1. Todd Ramsey

        Barkley Rosser-

        I am sorry if I implied that I believe V is fixed. I believe it varies massively according to circumstances.

        My point is that in the 1970s the Fed, and many academic economists, did not understand that MV was the determinant of inflation, contraction, and nominal GDP. Hence the WIN buttons (yes, I understand the Fed did not issue those, but they are a metaphor for our understanding of inflation in the 1970s).

        My point is that I think the Fed has learned that persistent 1970s type inflation is bad and should be avoided, and that they have a much better understanding of their available tools to prevent it. I believe both have been learned since the 1970s.

        1. pgl

          Oh good grief. As early as Dec. 1965, LBJ’s CEA was warning him that excess aggregate demand could spark inflation unless the FED raised interest rates. So they knew the role of monetary policy a full decade before those stupid WIN buttons.

        2. ltr

          I remember from a multi-volume biography * of Lyndon Johnson, a scene in which Johnson literally, physically ordered the Chair of the Federal Reserve not to increase interest rates. Also, I believe Richard Nixon, less physically, told the Fed Chair to leave interest rates alone.

          * Robert Caro

    2. pgl

      “The Fed knows now that monetary policy causes inflation. They did not know that in the 1970s. Does anyone else remember Whip Inflation Now buttons?”

      Yea – I do remember those stupid WIN buttons. But the FED knew full well that tight money can reduce inflation albeit by causing things like the 1974/75 recession. I guess you did not remember that.

    1. Barkley Rosser

      Andre M,

      If what you are referring to is Todd Ramsey’s statement, it may have been “well said,” but that did not keep it from being somewhat substantially misleading and inaccurate.

      1. pgl

        “somewhat substantially misleading and inaccurate”?

        Make that incredibly misleading and inaccurate!

        The role that monetary played was known even in the 19th century.

  9. macroduck

    Jay Powel will testify that “The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation. Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.”

    He’ll also say most forecasters expect inflation to weaken “significantly” next year. Tack on “uncertainty” and there is still an argument for tapering and eventually raising rates, but he hasn’t locked himself in on timing. Could happen in Q and A, but more likely he’ll say “Omicron” in response to timng and speed questions.

  10. ltr

    November 30, 2021

    China’s factory activity rebounds as energy crunch eases

    BEIJING — China’s factory activity picked up in November following the easing of power shortages and a drop in raw material prices, official data showed Tuesday.

    The purchasing managers’ index (PMI) for China’s manufacturing sector came in at 50.1 in November, up from 49.2 in October, according to the National Bureau of Statistics (NBS).

    A reading above 50 indicates expansion, while a reading below reflects contraction.

    The rise came after the country’s measures to ensure adequate energy supply and stabilize market prices started to work, said NBS senior statistician Zhao Qinghe.

    In November, the sub-index measuring purchase prices of major raw materials dropped 19.2 percentage points from October to 52.9. The ex-factory price index fell to 48.9, down 12.2 percentage points from last month.

    The sub-index for production expanded 3.6 percentage points to 52…

  11. ltr

    November 29, 2021

    What Europe Can Teach Us About Jobs
    By Paul Krugman

    Americans have a hard time learning from foreign experience. Our size and the role of English as an international language (which reduces our incentive to learn other tongues) conspire to make us oblivious to alternative ways of living and the possibilities of change.

    Our insularity may be especially damaging when it comes to countries with whom we have a lot in common. Western Europe is our technological equal; labor productivity in northern Europe is just a little below productivity here. But Europe’s policies and institutions are very unlike ours, and we could learn a lot by looking at how those differences have played out. Unfortunately, any suggestion that Europe does something we might want to emulate tends to be shouted down with cries of “socialism.”

    Which brings me to an under-discussed aspect of the current economic scene: Europe’s comparative success in getting workers idled by the pandemic back into the labor force.

    You’re probably aware that the United States is experiencing what many call the Great Resignation — a significant fall in the number of people willing to accept jobs, at least at pre-Covid wages. Four million fewer Americans are employed than were on the eve of the pandemic, yet the rate at which workers are quitting their jobs — usually a good indicator of labor market tightness — has hit a record, and the scramble of employers to find workers has led to rapid wage increases….

  12. Manfred

    I just love it when these types teaching at “schools of public policy”, be it in the Midwest or in cushy Cambridge, Mass, say “this ain’t the 70s”.
    It rings like saying, oh yeah, prices are rising, but at least we are not Weimar or Zimbabwe or Bolivia 1985 or Argentina 1989.
    Thus, since we are not Weimar, we should be grateful.

    These “school of public policy” types forget one thig: the current administration started saying this is going to be “transitory” – with Janet-the-true-public-servant-Yellen pounding this on any desk that she could find. She insisted again and again that these price increases would be “transitory”, “temporary”, and she even said that if we spend another 5 trillion dollars or so (Infrastructure and Build Back Better combined), inflation would abate and go away. Why? Because spending all this money, putting all that money into the economy (money that needs to be printed) is going to make the economy more competitive. Is this the stuff they teach at Berkeley?

    But today – November 30th, 2021 – it is all out the window. Jerome Powell said that it is not “transitory” any more. So, what euphemism are they going to use now, those brainy faculty members of the “schools of public policy”? “Non-transitory”? “Semi-permanent”? Or perhaps “permanent”?

    Here is the problem: people like that the editorial board of the WSJ or a few economists like John Cochrane, insisted that it is not transitory. They were laughed out of the room, scorned for not believing what Janet-the-true-public-servant-Yellen was saying. Of course, things started to crack, when Lawrence Summers started his sharp criticism. Because Summers has proper notches on his CV (Democrat, Hahvahd guy, liberal, etc). The others, oh no, those were right wingers, to be dismissed immediately.

    One more thing: Jeff-who-does-not-answer-comments-from-lower-people-The Hahvahd guy says: “Policy-makers won’t repeat mistakes of the 1970s”.
    Really Jeff? How do you know? They made their first mistake already. They insisted on this “temporary” thing. How do you know they will not continue making mistakes? You see Jeff (I know you do not answer comments from the commoners), you see, in the 70s, it also started with the Fed thinking that it would be “transitory”.

    One really wonders what they teach in “schools of public policy” or “schools of government”.

    1. Menzie Chinn Post author

      Manfred: My experience as one who has invited guest writers is that they do not, as a rule, comment very much, if at all. Hence, I do not think that you should take his relative lack of responses as an indictment of his character. Unless you are willing to apply that to pretty much all of the guest contributors I have invited (which you very well might).

      1. Moses Herzog

        The readers are lucky you make the effort to get them and that they are gracious enough to accept. I’m still waiting on Gita Gopinath on any topic under the sun, and maybe a James Kwak (more recent) post related to law. Quit slacking dude (that last part is a good-natured razz).

        Getting Edward “Man of Letters” Leamer on (with strong encouragement to use his dry humor) would be super-cool. It was also fun when you and Prof Hamilton invited your more stellar students as well. Youthful energy/perspective always helps. You guys have gotten lots of good ones too numerous for this lazy guy to list.

    2. noneconomist

      Goodness! Self styled hardworking family man Manny, who said he has little time to comment here on pedestrian topics, is back with a comment on commenters who, apparently, are too afraid to comment truthfully on topics which Manny knows little about but will comment on anyway.
      When last we saw him here, he took time from his hectic schedule to lament the poor reception received in these posts by the late Rush Limbaugh.Busy though he says he is, Manny took time to author a few posts in defense of Limbaugh, pausing family obligations, work, and a busy lifestyle to honor one of contemporary America’s most important conservative heroes who had earned a fortune lying about various topics, thus earning Manny’s undying respect.
      How fortunate we are when the Mannys of the world take time from their busy schedules to scold professionals like Professors Frankel and Chinn. But someone has to, and if work and family must suffer, so be it.

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