Brad DeLong & Ray Suarez talk on Ray's "Shifting Ground" podcast about the current and past fights with inflation: "You really don't complain about leaving rubber on the road when you rejoin the...
Another note on inflation. As much as inflation destroys the value of paper assets, it also destroys the impact of paper debt. Once an equilibrium is reached, only present day labor keeps pace with inflation. Daniel Amerman, CFA, wrote quite a bit on this phenomenon in his early material.
That's the reason that inflation is so feared by policy makers. If inflation was just about people starving in the streets because they can't afford food or a place to live, there is no way the Fed or anyone else in power would move a muscle to fight it.
I often think of inflation as Hawking radiation. There is no way to get anything out of black hole, but Hawking radiation provides a mechanism for escape. Money gets sucked up by the extremely wealthy to the point of crushing the economy overall, but inflation provides a mechanism for moving money out of that black hole.
One thing that aided Ronald Reagan and his economic policy was the collapse of the oil price to less than $25/barrel. Big oil continued drilling and exploring, paradoxically, during that era. The potential effect was to hasten the collapse the Soviet economy by damaging their #1 export product. Another driver of inflation during 2006 was the worry about Peak Oil, of course, which never occurred.
"The system has betrayed you… offered you a bargain, and then… did not keep… it. So you are going to be angry"
Biden did not go enough to focus that anger on the Fed. Too much (anything greater than zero is too much) rubbed off on ARA. And the Fed failed to explain that part of the above target inflation was a good thing, allowing relative prices to adjust even as they admitted that they allowed a bit more than was necessary.
Dollar privilege: Unfortunately we have taken advantage of (by running structural deficits) to to consume/import more relater than to invest/export more which at least exacerbated the decline in manufacturing employment in addition to slowing growth.
I don’t like the idea of inflation _being_ “temporary” or not “temporary.” Positive and negatives shocks happen and the Fed reacts well or badly and inflation/deflation is temporary or not. The Fed reacted badly in 2008-2020 and below target inflation became “entrenched.” It was slow off the mark in 2021 and inflation, though not entrenched, has not been as temporary as we would have hoped.
Well, certainly not the whole story it does appear that Ukraine and the supply chain disruptions caused in large part by Covid, played a major role in this current bout of inflation.
As the supply chain kinks are worked out I think we are seeing one cause for the easing of inflation. I would love to hear your thoughts about what impact the feds actions increase of the interest rates may now be negatively contributing to inflation. As more goods become available, the interest costs associated with those goods puts upward pressure on their prices.
Again, inflation is an extremely complex phenomenon, but I have a hard time, completely ignoring one side of the equation. One fundamental view of the cause of inflation is too “many dollars chasing to few goods.” The Fed has tools to work on only one side of the equation, and they seem to be ignoring efforts that can be, and are being, made to increase the supply of goods.
That was my point, the Fed can only work on one side of the equation, however, there are other entities that can help on the supply of critical goods in short supply. Wouldn’t it make sense for the Fed to identify and reach out to those folks and put together a coordinated approach?
While the interruption of the supply chain and shortages of key components, such as computer chips were only part of the cause of this last bout of inflation, they certainly played a role. While the Fed uses its tools (the only ones it has) it seems to focus only on the macro numbers. A more granular view of supply side shortages would suggest targeted actions by the government and others to increase their supply and put downward pressure on those prices. Also, to the extent the Fed has raised interest rates across-the-board, the higher cost of borrowing will actually put additional inflationary pressure on procuring those goods in short supply.
I haven’t worked out the math on all of these things, but ignoring them, seems to limit us to fighting inflation, with one hand behind our back.
The essence of what I am suggesting is that if we are serious about being effective in bringing down inflation, we should put together a coordinated plan using all of our tools, and being aware of potential negative impacts from the use of some of them.
I know that inflation is easing, but the Fed seems to me to be too focused solely on the macro numbers, such as job, growth, unemployment rate, and GDP, etc. I think they miss a whole lot of the picture keeping their focus solely at that level. I know they only have tools that work at that level but that doesn’t mean they can’t talk to other components of our society.
It’s sort of like you are the manager of a baseball team who only has a batting coach. If you put all of your effort and resources into the batting coach and don’t go out and get a fielding coach, or a pitching coach, you’ll probably have a good hitting team, but you’ll have a hard time reaching the higher goal: winning games.
haven’t worked out the math on all of these things, but ignoring them, seems to limit us to fighting inflation, with one hand behind our back.
The essence of what I am suggesting is that if we are serious about being effective in bringing down inflation, we should put together a coordinated plan using all of our tools, and being aware of potential negative impacts from the use of some of them.
I know that inflation is easing, but the Fed seems to me to be too focused solely on the macro numbers, such as job, growth, unemployment rate, and GDP, etc. I think they miss a whole lot of the picture keeping their focus solely at that level. I know they only have tools that work at that level but that doesn’t mean they can’t talk to other components of our society.
It’s sort of like you are the manager of a baseball team who only has a batting coach. If you put all of your effort and resources into the batting coach and don’t go out and get a fielding coach, or a pitching coach, you’ll probably have a good hitting team, but you’ll have a hard time reaching the higher goal: winning games.
My comments were not directed to inflation in general, but rather this recent current bout of high inflation, which I believe was caused in large part by supply chain interruptions; the Ukraine war; and the disruption of the oil supply, which caused a run up in the price of oil, which impacted transportation costs.  All of these combined to have a dramatic impact on the supply of goods.  The steps taken (which I believe to be necessary) to put money into the economy to battle the terrible economic impacts of those items I just mentioned, did increase the effective demand of the consumer and business sectors.
My lament was that the Fed basically only has tools to deal with the money supply side of the equation( the “too much money”) but doesn’t have tools to deal with the other issues that were causing the reduction in the supply of goods, a major factor in the imbalance between the amount of effective demand and the supply of goods desired. And it seems to me that the Fed and other policy makers have been focused almost solely on the money supply side of this imbalance, and has not publicly recognized the part, played by the short term reduction in the amount of goods available,not sought coordination with others that could have had an impact on the supply of goods.
If the Fed keeps striking the economy with its blunt hammer of raising inflation rates, without coordinating with efforts to alleviate the short term supply side shortages, it seems to me, that we greatly increase the risk of a recession that is not necessary to reduce the level of inflation to a more acceptable level.
Thanks for always having such enlightening commentary.
I’d like to add a general comment to add to the general conversation concerning this recent inflation. I have started to see a few folks start to address it but mostly I feel my point has been ignored. It is this:
at its most fundamental level, inflation is the result of too many dollars chasing to few goods. The Fed only has tools to work on the dollars. It doesn’t have any tools to directly affect the amount of goods, except negatively.
I believe that a significant component of the current inflation, especially in its early term, was the result of two few goods, mostly caused by supply chain issues, and the fallout from the Ukraine war. Shortages were and are everywhere, restricting the supply of finished goods.
I don’t think there has been nearly enough focus on the quote “too few goods“ side of the ledger. I yes, restricting demand can have an impact on inflation, but alleviating the bottlenecks and increasing the supply of goods seems to me, that it would be an even more effective method, with the added benefit of avoiding a recession.
As a corollary to this, I think there is a serious lack of the Fed looking for ways to coordinate it’s blunt hammer of interest rates increases with other players and strategies to work on increasing the supply of goods. And if we had more goods, there wouldn’t be too many dollars chasing them.
I don’t think this analysis holds in every case of inflation, but it sure does seem to apply to this one.
It sure would be nice to have a well recognized, economist, such as Brad DeLong, or Paul Krugman, to explore this idea and publish some thing that would be widely read.
There is nothing wrong with too many dollars chasing too few goods. That's also known as economic growth. Rising prices send signals for new capital investment, innovation and shifts in employment. It's hard to imagine a growing economy without inflation. That's all Econ 101.
Another note on inflation. As much as inflation destroys the value of paper assets, it also destroys the impact of paper debt. Once an equilibrium is reached, only present day labor keeps pace with inflation. Daniel Amerman, CFA, wrote quite a bit on this phenomenon in his early material.
That's the reason that inflation is so feared by policy makers. If inflation was just about people starving in the streets because they can't afford food or a place to live, there is no way the Fed or anyone else in power would move a muscle to fight it.
I often think of inflation as Hawking radiation. There is no way to get anything out of black hole, but Hawking radiation provides a mechanism for escape. Money gets sucked up by the extremely wealthy to the point of crushing the economy overall, but inflation provides a mechanism for moving money out of that black hole.
To add to this, I would say that a mechanism for soaking up excess money is to lock it up within the equities market.
One thing that aided Ronald Reagan and his economic policy was the collapse of the oil price to less than $25/barrel. Big oil continued drilling and exploring, paradoxically, during that era. The potential effect was to hasten the collapse the Soviet economy by damaging their #1 export product. Another driver of inflation during 2006 was the worry about Peak Oil, of course, which never occurred.
"The system has betrayed you… offered you a bargain, and then… did not keep… it. So you are going to be angry"
Biden did not go enough to focus that anger on the Fed. Too much (anything greater than zero is too much) rubbed off on ARA. And the Fed failed to explain that part of the above target inflation was a good thing, allowing relative prices to adjust even as they admitted that they allowed a bit more than was necessary.
Dollar privilege: Unfortunately we have taken advantage of (by running structural deficits) to to consume/import more relater than to invest/export more which at least exacerbated the decline in manufacturing employment in addition to slowing growth.
I don’t like the idea of inflation _being_ “temporary” or not “temporary.” Positive and negatives shocks happen and the Fed reacts well or badly and inflation/deflation is temporary or not. The Fed reacted badly in 2008-2020 and below target inflation became “entrenched.” It was slow off the mark in 2021 and inflation, though not entrenched, has not been as temporary as we would have hoped.
Brad, thanks for the reply.
Well, certainly not the whole story it does appear that Ukraine and the supply chain disruptions caused in large part by Covid, played a major role in this current bout of inflation.
As the supply chain kinks are worked out I think we are seeing one cause for the easing of inflation. I would love to hear your thoughts about what impact the feds actions increase of the interest rates may now be negatively contributing to inflation. As more goods become available, the interest costs associated with those goods puts upward pressure on their prices.
Again, inflation is an extremely complex phenomenon, but I have a hard time, completely ignoring one side of the equation. One fundamental view of the cause of inflation is too “many dollars chasing to few goods.” The Fed has tools to work on only one side of the equation, and they seem to be ignoring efforts that can be, and are being, made to increase the supply of goods.
Well, the Fed has no levers it can use to increase the supply of goods...
Thanks for the response, Brad.
That was my point, the Fed can only work on one side of the equation, however, there are other entities that can help on the supply of critical goods in short supply. Wouldn’t it make sense for the Fed to identify and reach out to those folks and put together a coordinated approach?
While the interruption of the supply chain and shortages of key components, such as computer chips were only part of the cause of this last bout of inflation, they certainly played a role. While the Fed uses its tools (the only ones it has) it seems to focus only on the macro numbers. A more granular view of supply side shortages would suggest targeted actions by the government and others to increase their supply and put downward pressure on those prices. Also, to the extent the Fed has raised interest rates across-the-board, the higher cost of borrowing will actually put additional inflationary pressure on procuring those goods in short supply.
I haven’t worked out the math on all of these things, but ignoring them, seems to limit us to fighting inflation, with one hand behind our back.
The essence of what I am suggesting is that if we are serious about being effective in bringing down inflation, we should put together a coordinated plan using all of our tools, and being aware of potential negative impacts from the use of some of them.
I know that inflation is easing, but the Fed seems to me to be too focused solely on the macro numbers, such as job, growth, unemployment rate, and GDP, etc. I think they miss a whole lot of the picture keeping their focus solely at that level. I know they only have tools that work at that level but that doesn’t mean they can’t talk to other components of our society.
It’s sort of like you are the manager of a baseball team who only has a batting coach. If you put all of your effort and resources into the batting coach and don’t go out and get a fielding coach, or a pitching coach, you’ll probably have a good hitting team, but you’ll have a hard time reaching the higher goal: winning games.
haven’t worked out the math on all of these things, but ignoring them, seems to limit us to fighting inflation, with one hand behind our back.
The essence of what I am suggesting is that if we are serious about being effective in bringing down inflation, we should put together a coordinated plan using all of our tools, and being aware of potential negative impacts from the use of some of them.
I know that inflation is easing, but the Fed seems to me to be too focused solely on the macro numbers, such as job, growth, unemployment rate, and GDP, etc. I think they miss a whole lot of the picture keeping their focus solely at that level. I know they only have tools that work at that level but that doesn’t mean they can’t talk to other components of our society.
It’s sort of like you are the manager of a baseball team who only has a batting coach. If you put all of your effort and resources into the batting coach and don’t go out and get a fielding coach, or a pitching coach, you’ll probably have a good hitting team, but you’ll have a hard time reaching the higher goal: winning games.
I would be very grateful if Brad would log in with his thoughts on this matter!
Looks pretty temporary as of now...

My comments were not directed to inflation in general, but rather this recent current bout of high inflation, which I believe was caused in large part by supply chain interruptions; the Ukraine war; and the disruption of the oil supply, which caused a run up in the price of oil, which impacted transportation costs.  All of these combined to have a dramatic impact on the supply of goods.  The steps taken (which I believe to be necessary) to put money into the economy to battle the terrible economic impacts of those items I just mentioned, did increase the effective demand of the consumer and business sectors.
My lament was that the Fed basically only has tools to deal with the money supply side of the equation( the “too much money”) but doesn’t have tools to deal with the other issues that were causing the reduction in the supply of goods, a major factor in the imbalance between the amount of effective demand and the supply of goods desired. And it seems to me that the Fed and other policy makers have been focused almost solely on the money supply side of this imbalance, and has not publicly recognized the part, played by the short term reduction in the amount of goods available,not sought coordination with others that could have had an impact on the supply of goods.
If the Fed keeps striking the economy with its blunt hammer of raising inflation rates, without coordinating with efforts to alleviate the short term supply side shortages, it seems to me, that we greatly increase the risk of a recession that is not necessary to reduce the level of inflation to a more acceptable level.
Thanks for always having such enlightening commentary.
I’d like to add a general comment to add to the general conversation concerning this recent inflation. I have started to see a few folks start to address it but mostly I feel my point has been ignored. It is this:
at its most fundamental level, inflation is the result of too many dollars chasing to few goods. The Fed only has tools to work on the dollars. It doesn’t have any tools to directly affect the amount of goods, except negatively.
I believe that a significant component of the current inflation, especially in its early term, was the result of two few goods, mostly caused by supply chain issues, and the fallout from the Ukraine war. Shortages were and are everywhere, restricting the supply of finished goods.
I don’t think there has been nearly enough focus on the quote “too few goods“ side of the ledger. I yes, restricting demand can have an impact on inflation, but alleviating the bottlenecks and increasing the supply of goods seems to me, that it would be an even more effective method, with the added benefit of avoiding a recession.
As a corollary to this, I think there is a serious lack of the Fed looking for ways to coordinate it’s blunt hammer of interest rates increases with other players and strategies to work on increasing the supply of goods. And if we had more goods, there wouldn’t be too many dollars chasing them.
I don’t think this analysis holds in every case of inflation, but it sure does seem to apply to this one.
It sure would be nice to have a well recognized, economist, such as Brad DeLong, or Paul Krugman, to explore this idea and publish some thing that would be widely read.
There is nothing wrong with too many dollars chasing too few goods. That's also known as economic growth. Rising prices send signals for new capital investment, innovation and shifts in employment. It's hard to imagine a growing economy without inflation. That's all Econ 101.