How Not to Panic About Inflation

Mar 22, 2021 · 559 comments
Iamcynic1 (California)
As a small business which supplies retail stores with fabric goods, we had to cut our prices in order to stay in business. If a “ roaring economy” returns we’ll raise our prices back to what they were pre-COVID . My only problem is that after receiving 2 PPP loans which we didn’t have to pay back and which enabled us to keep our employees, I’m beginning to feel like an oil company executive. Getting free government money feels just too good.
Quinn (New Providence, NJ)
I worked in the trading operations of a large utility in 2007-2008 when there were large run-ups in the prices for natural gas and coal. Several executives were panicking and demanding that we sign long term contracts for gas at well over $12/mmcf and coal for delivery after 2010 at those very high prices. Had we done so, the company's customers would have seen drastically higher prices (fuel costs are directly passed to consumers) instead of the falling prices they actually experienced. Republicans remind me of those panicked executives: Let's do everything we can to slow things down, damn the cost to the average American! Yet these same Republicans had no problem passing the 2017 tax cuts while the economy was booming. And remember they all stayed silent when Trump said if the government defaulted on Treasury debt, we'd be able to negotiate lower interest rates. At this point, Republicans have lost all credibility when it comes to economic, fiscal and monetary policy.
Mary (Ohio)
Oh, right, a global shortage of shipping containers! Who saw that one coming? That sentence, in an otherwise sober op-ed, made me LOL! It's an effect of the pandemic. Of course, pandemics always do that. Too funny.
Fourteen14 (Boston)
If you want to stimulate the economy with no fear of inflation simply invest in the highest ROI investment - which is human capital - and stand back. Wouldn't even need this measly stimulus package. Raise the minimum wage for the 82,000,000 minimum wage workers to $26/hour, which is what it should be when adjusted for productivity gains. All that extra money is now and has been diverted to the rich. If you want to then double That with no added inflation, go for open borders and watch the human capital pour in and get to work. We'd become rich overnight.
Peter (MA)
I probably have a naive view of these things, since I know next to nothing about economics, but.... My understanding is that one of the main reasons for the low inflation rate over the last few decades is the huge income inequality of the US system. When profits go towards the rich, they sock it away in investment instruments, but the the majority of workers have no extra money to spend, so there is less money circulating in the retail market, and retail businesses can't raise prices. If this begins to change, eg, with a hike in the minimum wage and more corporate profit going to workers, only then will businesses be able to raise retail prices without sacrificing sales volume, since ordinary people will have more money to spend. I think it's terribly important to reverse the enormous income inequality we now have, but as I understand it, once we do so successfully we will finally see some inflation — hopefully to a degree the Fed can deal with easily. (I'd love a tutorial from Dr. Krugman here.)
achipandaputt (Boston)
Nobody goes to the local strip mall looking for an economist to purchase an economic forecast. Economists don't work the retail market, but the academic market. They might work for a corporation, a think tank, or a newspaper, but very, very few individuals hire economists. Suppose you're an economist, and you're looking for a job. Suppose you have a conservative frame of reference. You could get a job with a right-wing think tank. Were you to produce forecasts and papers which called for Universal Basic Income, or a corporate tax rate of 70%, you would not be employed there very long. A conservative economist must tell anyone who asks that tax cuts will solve all economic problems, lest she/he be unemployed. That's what your boss wants to hear. It is in the economist's self-interest to predict inflation from tax increases, and they dutifully do so every time a Democratic administration corrects for the GOP give aways to corporations and the richest. They may eventually be correct. They haven't been yet, but they have hope. It's either that or unemployment.
Anam Cara (Beyond the Pale)
The one place I would like to see inflation is in wages. We've seen the uber wealthy do better than ever even during the Covid collapse while the working poor have never had it worse. And, an article this week in the NYT showed that wage earners pay the bulk of the taxes to run government and pay for infrastructure while the wealthy cheat to high heaven as their income is much harder to track. In addition, Mitch's minions have hobbled the IRS by cutting staff by the thousands over the past 10 years so the rich know there chances of getting caught cheating are next to non-existent. Tax the rich by actually collecting the current taxes they owe and we'd be a different country - more like the first world one's overseas.
northlander (Michigan)
Question Larry Sommers.
Mary (Brooklyn)
Interesting that inflation alarms only seem to apply to government spending that primarily helps out people in need, in poverty, or in need of financial relief in the case of an economic collapse or a such alarms are sounded when we give a gigantic tax cut to the very well off even though the effect is pretty much the same. Both government spending and government tax cutting put more money into the economy, more ability to increase consumer spending and demand, while reducing government revenue and increasing deficits. The difference is purely ideological, and based on what segment of the income ladder is helped by the policy.
Larry (NY/NJ)
It’s all well and good if higher wages offset inflation but what about those who do not earn wages? Many millions of Americans planned for retirement and are now on fixed incomes and consequently have no hedge against inflation. We’re going to be ruined by the same idiotic policies that brought us inflation in the 70s. How many times are we going to try the same stupid tricks?
Jerseytime (Montclair, NJ)
@Larry How is it "idiotic" to help the unemployed, prevent evictions and keep businesses alive? Should younger people suffer alone, just to help those on fixed incomes? And Prof Krugman just wrote an entire article indicating that 1970s style inflation is unlikely.
northlander (Michigan)
How do higher interest rates for savings damage fixed income retirement funds?
Oracle at Delphi (Seattle)
I don't see how or why we should base economic policy on what happened ten years ago. Every time period and situation is different. This article seems more like a puff piece for the Biden spending plans. I have no idea, nor does anybody, including the NY Times have a crystal that works especially well when dealing with the economy. What we really ought to be worried about is letting the government essentially take over and make economic policy by going on spending sprees. Once the Bread and Circus starts it is pretty hard to say no to the mob.
Allen (Oregon)
@Oracle at Delphi As opposed to the Republican efforts to restrict government from spending on its citizens? Republicans always claim the mantle of "fiscal responsibility" and pretend to be experts on what makes the economy hum at top performance. But all you need is a history book -- not a crystal ball -- to see that Republican economics has always turned out disastrous for everyone in the bottom 90%, and sometimes the bottom 99% get taken the cleaners as well under their "expertise".
Believe in balance (Vermont)
If you want to see the real drivers of inflation, look at the metrics used in corporate budgets. In my many years as consultant and economist, I saw increases of 10%, 15% or more even when inflation was 2% or less. The excuse was always the TALK of inflation, not the reality of it. The talk acted as a cover for these increases in Executive pay and Corporate prices. Similarly, 15% to the bottom line was a standard mantra, no matter what the economic environment was. These are the REAL drivers of inflation, no matter what. As always, it is a good idea to follow the money.
Name With held (Colorado)
Of course inflation is not a problem if you have a job and a mortgage, or other big loan because you can pay it off with inflated dollars--in other words your borrowing costs actually decrease over time, and significantly if you have a 30 year mortgage. Now for the poor; or if you are a tenant, or Social Security recipient , or pensioner you are just screwed. Your costs, due to inflation will go up faster than your income; which hardly ever reverses itself so your rent, food, car, gas, utilities, taxes will rise. Inflation is government's way of screwing the poor and disadvantaged over and over again.
Marcy (Fort Worth, TX)
Democrats are the architects of America’s inability to build enough affordable houses to live in. I could understand if they said we had a palladium shortage, but a housing shortage? It makes no sense. Houses are just structures. We have millions of people out of work. Lumber prices are at record highs and apparently there’s not enough houses being built. These dynamics don’t make sense, unless you consider Democratic policies that created this ridiculous situation. Inflation is a problem, because prices don’t reflect market conditions. Lumber, land, and labor should all be cheap with so much unemployment. The free market isn’t working as it should and Democrats are at fault.
glennmr (Planet Earth)
Deflation may rear its ugly head first. As boomers retire and take spending power with them, the younger generations burdened with debt and less disposable income could cause low inflation to be no inflation and then deflation. When growth is the only mantra, a sustainable economy is going to be problematic eventually.
When Summer got all negatively excited against sending stimulus checks to common folks while maintained a studied thoughtful evasive silence on the 9 trillions that was again exposed by 34-year old Democratic Senator from Georgia, Jon Ossoff: "For at least a year, from September 17, 2019 through at least September 30, 2020, the New York Fed, acting as an agent for the Federal Reserve, doled out a cumulative $9 trillion or more in repo loans” without any oversight or discussion in public , and raised nota single cautionary word about paying trillions to companies starting around pandemic 2020 before economic impact on companies had been known , we knew that bailout was a scam lost in jargon . Citizen get crumbs -the dirty left over . Inflation is a word taht changes its impact and meaning . Do bank rogue shady banking ,hedge fund or primary dealers fof fed experience it ? No. We do. Those who earn daily wage ,they experience .Those who leave paltry some of m money ,experience. this who leave money in bonds experience . I heard about Amazon displacing 1 million business . I wonder how much tax those 1 million business were-paying to gov and how many they were employing compared to near zero tax of the big corporations . How much did it claim in bailout or how ,cuh did it claim through its front companies?
Susan (Rochester, NY)
Today's Prickly City is a Pint sized Krugman v. Summers.
ann (Seattle)
Paul Krugman has been touting the government services provided in many Western European countries such as Denmark. What Krugman has neglected to tell us is that Denmark has been actively discouraging asylum seekers. It has cut the allowance it gives them in half and has advertised this cut in countries such as Lebanon where there are many who might be considering requesting asylum in Denmark. Biden is proposing that parents not have to work to receive monthly government allowances. Denmark has decided to increase the punishment for anyone who lives in a community with high unemployment (i.e. immigrant communities) who commits a crime. Our civil rights activists are decrying the higher punishments that are given to minorities while Denmark has been increasing them. We do not deport either the undocumented or those whose requests for asylum have been denied. Denmark has decided that if it cannot deport such people that it will hold them on an isolated island. Denmark has greatly increased the difficulty of its exam for becoming a Danish citizen while Biden has made our exam easier. Danes have realized that they cannot afford to accept large numbers of poorly educated migrants if they want their government to continue to offer all of the services they have become accustomed to.
Robert (Out west)
First off, this excellent editorial doesn’t so much as mention EUROPE, let alone Denmark. Nor did Krugman discuss nuclear weapons, giant mutant carrots, or tapeworms. Second off, I get that there are those who have the same two giant struggling bees in their bonnet—population size, and immygration. Of course they’re actually jist one big honking bee, and it’s wearing a Klan kostume. If you cared about pop control, you’d go after guys like Trump for attacking Plannet Parenthood and poor folks. If you cared about immogration control, you’d want rational legislation and some work to help Latin America. Cripes, EVERYTHING can’t always have the same answer. “Would you like mustard with that nice ham on rye?” “What about them ILLEGALS!!!???”
Nancy L. Isenburg (97128)
Paul, would you please go talk with your fellow columnist Bret Stephens? He seems to be forecasting runaway inflation and the rise of the welfare state already...
glennmr (Planet Earth)
@Nancy L. Isenburg Kinda doubt they have lunch together.
ann (Seattle)
Progressives have been urging Biden to be another FDR by having the government employ large numbers of unemployed people to build infra-structure and in other public works. What the Progressives neglect to say is that FDR thought that government workers should not unionize. Biden wants to increase the power of unions. He is promising that rebuilding our infra-structure will produce good-paying union jobs. Biden also wants to borrow or print money to legalize the undocumented, help them bring in any children and spouses still in their own countries, subsidize housing for every poor family (including the newly documented), provide paid maternity/paternity leave, raise the government subsidy for each child, raise the pay of child and elderly care workers and provide their services to every poor family for free and on a sliding scale for the middle class, and provide a very long list of other free or highly subsidized services that would be performed by unionized workers. If the government underwrites most of the cost of hiring huge numbers of people, and encourages them to unionize, and legalizes the undocumented and highly subsidizes every poor family and many middle class families mostly on borrowed or printed money, then how could prices not go up? How could the value of the American dollar not decline?
996GT3RS (PA)
@ann where is your evidence to support your claims, especially this related to the "very long list of other free or highly subsidized services that would be performed by unionized workers" and the " highly subsidizes every poor family and many middle class families mostly on borrowed or printed money?"
John B (Winchester, MA)
@ann Probably true. But if Rs want to do the proof they'll have to allow the programs to pass. Since they will block such legislation, most of the items you list will not come to pass, so there probably isn't going to be that much inflation.
Thomas (Austin)
@ann The question for you is how to many European countries manage to do most of this without excessive inflation? (Not withstanding their poor Covid response.)
Dangoodbar (Chicago, IL)
Well I agree with the premise of Professor Krugman's article, some details, especially as they relate to the 1970s, I remember it differently. The most basic disagreement regarding inflation going forward was the expectation that the price increases affecting energy and food were permanent and not blips. Oil, in the 1970s was much more important than today. Therefore the "Arab oil embargo" of the early 1970s and cartel control over the price had a much bigger impact than it would today. The rising price of oil combined with America nearing full employment in 1978, especially with woman entering the workforce for the first time, resulted in high inflation. Jimmy Carter responded with policies that both ended price control on oil allowing the price to spike in the short term causing in the long-term extra supply that resulted in oil prices falling after 1980. Carter also planned a recession to slow down inflation through reducing employment again in the short term. It was these policies of Carter, allowing oil to spike creating extra supply that resulted in cheap oil for the next 20 years. The problem was nobody expected Cater's policy to work and therefore priced in what was thought to be permanent increase in energy costs. That is Jimmy Carter proved the free market actually works. It is just nobody believed it at the time nor do they give Carter credit today for his energy policy, one of the great achievements of the time. Today we understand the market better.
mark (Houston)
“And it’s certainly possible that the American Rescue Plan will turn out, in retrospect, to have been too much of a good thing. “ I’m amazed that even Dr. Krugman has joined Republicans in worrying that this last round of stimulus may have overdone it. He’s right to be concerned. Note that he doesn’t argue that inflation or stagflation will not occur, only that the metrics people typically use are often wrong. Dr. Krugman does not discuss two potential stagflation triggers: 1) the blunderbuss nature of the bill which gave “free” money to a lot of Americans that don’t need it could lead to asset bubbles; and 2) the tremendous amount of additional borrowing the Treasury will have to do may mean that it will be forced to pay increasingly higher yields to attract buyers. The asset bubbles will inevitably pop with possibly disastrous consequences for the economy. Increased Treasury yields could trigger the expectation of future inflation and become the self-fulfilling prophecy that Dr. Krugman wrote about. They would also significantly increase the debt service portion of the federal budget. This would require increasing taxes - on the middle class and businesses too, not just the rich - and debt servicing would crowd out other government spending. Finally, increased yields would drive up borrowing costs throughout the economy. All of this would simultaneously increase costs and depress economic activity, which is the very definition of stagflation.
Guy N. Cabell (Bettendorf, IA)
In college, I had a history professor who said that the USA has always gone partially crazy during periods of high inflation - he mentioned the social disorder of the 1960s and early 1970s as a good example. I now worry more about inflation leading to social upheaval, although given the current polarization, and the refusal of Republicans to accept reality, perhaps we're already there.
Dr Michael (Bethesda, MD)
Inflation is not always bad. When the government debts is high over time the nominal value of the rising debt will decrease as long as the Feds do not raise sharply the short term of interest rates. I don’t think the current Fed chair will raise them significantly based on his latest testimonies.
Dr. Planarian (Arlington, VA)
I am a bit less sanguine about future inflation, because my fears are based on the route back to power that many Republicans, and more important the interests on which Republicans depend for their campaign financial advantages, seek to follow. The "stagflation" of the 1970s had a single proximate cause, from which all the psychological factors mentioned by Dr, Krugman arose. The severe shock to our economy from the 1974 OPEC oil embargo drove energy prices beyond what anyone had ever before seen or even imagined, and this both caused inflation directly by raising fuel prices and everything dependent on transportation as a part of its costs, and fed the psychological expectations of further inflation. Although we followed severe austerity measures to deal with this, which caused the "stag" part of it, we had gotten it somewhat under control when our oil companies, eager to rid themselves of the burden of allocation requirements, simply shopped shipping and refining crude oil as a political ploy, resulting in another ruinous price spike and more gas lines and bringing about the election of Ronald Reagan. Republicans learned that lesson, and for our oil companies is could turn out to be a win-win scenario despite the fact that we are now net exporters, as they can strategically shut down refineries and push for foreign suppliers to withhold supply and again cause inflation to rapidly increase, with Republicans gleefully saying "I told you so." Don't put it past 'em!
Edward P Smith (Patchogue, NY)
Real inflation will not occur as long as large corporations and the super rich can vacuum up the money supply without returning any into circulation.
Edward Brennan (Centennial Colorado)
The reality is that government debt is not a concern until the moment it isn’t. Mr Krugman is well aware that confidence is often lost at tipping points not safely on curves. Should we be taxing the rich more to pay for America infrastructure? Should we be taxing more so we don’t have to take out even more debt? Should we be taxing more so that we can afford social programs for both physical and mental health? Should it all be debt driven? No. There will come a time with enough debt, that those debts will be called in. There is no reasonable belief that the US dominance since 1950 will continue to make the dollar the reserve currency, the us the place to invest, and our market driving everything. We must prepare for that future. Mr Krugman’s generation has never cared about the future after them, now is the time to start. This doesn’t mean an end to government debt spending, and in certainly should be addressed from a point that also targets an obscene military, and police tanks. Waste and gun nuts on a grand scale. We do have to make sure it isn’t just the rich putting away for themselves, charging the public purse so that if things collapse the are fine behind walls. That is the current policy. Rob America and bail when the bill comes due. Mr Krugman is right that it isn’t an immediate concern, but he is a liar when it comes to long term issues.
APM In PDX (Portland, Or)
Republican policy is all misinformation and misdirection. The rich didn’t get rich by not spending or cutting their revenue. They got rich by investing for a return. In that regards, please not what gives a return and what does not. Moodys Zandi 2009 financial stimuluslus analysis. Table 1: Fiscal Stimulus Bang for the Buck Source: Moody's Bang for the Buck Tax Cuts Nonrefundable Lump-Sum Tax Rebate. 1.01 Refundable Lump-Sum Tax Rebate. 1.22 Temporary Tax Cuts Payroll Tax Holiday. 1.28 Across the Board Tax Cut. 1.03 Accelerated Depreciation. 0.25 Permanent Tax Cuts Extend Alternative Minimum Tax Patch. 0.49 Make Bush Income Tax Cuts Permanent. 0.31 Make Dividend and Capital Gains Tax Cuts Permanent. 0.38 Cut in Corporate Tax Rate. 0.30 Spending Increases Extending Unemployment Insurance Benefits. 1.63 Temporary Increase in Food Stamps. 1.73 General Aid to State Governments. 1.38 Increased Infrastructure Spending. 1.59 Note: The bang for the buck is estimated by the one year $ change in GDP for a given $.
mbl14 (NJ)
have most of the commenters been living in the real world? Inflation has already begun. I see it in my day to day.
Reality (WA)
@mbl14 You must have just recovered your lost eyesight. The basics- Housing, Insurance, Transportation, Medical- in fact, everything with perhaps the exception of food, have gone up every single year, but THEY tell us no, so interest on savings and SSA payments are stagnant or go South.
talesofgenji (Asia)
Re Inflation No "Panic" yet but the Markets are already worried The NY Times Header "Inflation Fear Lurks, Even as Officials Say Not to Worry" Subheader: Prices have yet to show much movement, but the prospect of an unbridled economy’s surging back from the pandemic has unsettled the markets. NY Times March 10 th, Updated March 21, 2021 Mr. Krugman appears not to read the newspaper he is writing for. Had he, he would have read "The inflation fixation has been one driver behind a sharp sell-off in government bonds since the start of the year, pairing with a stronger growth outlook to push yields on 10-year notes up to about 1.5 percent, from below 1 percent. Bonds, like stocks, tend to lose value when inflation expectations grow, eroding asset values." So what is the 10T yield today ? 1.74% - putting to shame the taper tantrum of 2013
David (Seattle)
It's not that government is de facto bad, but whatever it does, it does by force and rejects that free people would produce good outcomes if allowed to. Should I lie about your position as "people are de facto bad" and only government force is good?
Groucho marxist (Canada)
@David Where do you get the idea "that free people would produce good outcomes if allowed to." I'm sure it's true some of the time, but as axiom, or more appropriately, dogma, it fails. Free people mean different things to different people and lately in the USA it seems to mean free to ignore everyone else and go shoot up something with a weapon of war or spread disease or keep a woman in the next town from obtaining birth control... Nope, not buying it, and I suggest that nobody else does either. Ronald Reagan, that amiable dunce, was pretty free -- he could afford to be, like the recently fired occupant of the White House, but as for the rest of us, be afraid, very afraid.
LAars (NY)
Remembering the Lessons of 2010 In 2008, the incoming President Obama assembled a panel of most distinguished economists, under the direction of Larry Summers, to recommend the size of the economic rescue effort. Below are the amounts some on the Panel recommended Paul Krugman $ 600 Million, 1 year (page 16) Ken Rogoff, former chief economonist of the IMF $ 1 Trillion, 2 years Senior Federal Reserve official appear of the view that a plan that well exceeds $ 600 billion would be desirable (page 17) The size of the economic stimulus package , $ 981 nillion $ 381 Billion larger than what Paul Krugman recommended,when he had his say The 57 page report, that even back then recommended investing in green energy is available at Acolytes of Krugman argue that he changed his mind when circumstances changed. The purpose of the pane was to predict how circumstances would change and how to best respond to it.
Stephen Merritt (Gainesville, Florida)
A Nobel Prize and he likes Iain Banks and Douglas Adams. What great judgment! Seriously, folks, this guy has a great track record, and not just in science fiction. Please, please believe him.
Bob (Clinton, MA)
Right-wing zealots warning about inflation are the same people who've been pushing the discredited notion of "trickle down" economics since the days of Ronald Reagan who, I would remind you, died of Alzheimer's Disease.
Scott Klimo (Bellingham)
Dear Paul, Please share this article, or better yet sit down, with your fellow columnist Bret Stephens and explain all of this so he will stop mindlessly whinging about the inflation threat about to be unleashed by the stimulus bill. People seem to think he's the "thoughtful" conservative, so maybe you can get through to him. Thank you.
runaway (somewhere in the desert)
The price of an eight foot 2x4 now stands at over six dollars. The price rise began when the previous guy started the trade war with our Great Enemy, Canada. There can be many reasons for inflation including the helter skelter actions of tariff boy.
Edward P Smith (Patchogue, NY)
I’m 64 years old. Whenever a Democrat has landed in the White House the Big Oil cartels retaliate by raising the prices of gasoline and home heating oil. This time we are ready for them. They are in effect subsidizing renewable energy.
AynRant (Northern Georgia)
American history from the final days of the Eisenhower Administration to the end of the Trump Administration teaches us one clear lesson: ignore everything every Republican politician says or writes! The Republican Party seeks to preserve the power and privileges of the rich and powerful by denying opportunity to others. It's the only political party left standing in the modern era of science, technology, and communications. American politics have been reduced to Republicans (R) against the rest of us, designated (D) on the ballot. The Obama economic recovery from the Republican Great Recession was slowed by the attempt to negotiate and include Republicans. Still, the Trump Administration rode the Obama recovery to economic success until their incompetent response to a world-wide pandemic brought our nation to its knees. The $1.9 trillion rescue plan was possible because the voters of Atlanta struck down Republican obstruction in the Senate by replacing two rubber-stamp Republicans with distinguished and honorable Senators who abruptly dispatched Mitch McConnell and his gaggle of windbags to the back benches of the Senate chamber. Now that progress is possible, let's move toward the social democracy proclaimed in the opening paragraph of our Constitution! Let's take for ourselves the opportunities and benefits that citizens of every European, Asian, and Australasian democracy already have, a cradle to grave social infrastructure!
Ralph Averill (New Preston, Ct)
When the Republicans are out, there is always an enemy at the gates, often more than one. They trot out “Inflation!” whenever ordinary citizens get any kind of break.
JD (Elko)
@Ralph Averill you forgot... the deficit, the deficit and the always mandatory tax cuts will make everything better due to the trickle down theory.
Concerned (CT)
@Ralph Averill Worthless partisan comment. The more important question at hand, and which Paul predictably ignores, is what tools are left to stimulate an economy in a downturn when all of our tools are used up. Sure, inflation MAY not occur from hyper spending, but that isn't for certain. Worse, when we spend beyond our limits, because that is what we want rather what is prudent, we put ourselves in a precarious position of being unable to react during true emergencies. At some point we will realize (like Greece during the mid 2000s) that our government can't operate effectively with runaway debt, especially when there is no one to bail out the bailers.
Danny Mathews (aka Grizzly Cub) (Southern California)
@Concerned The Greece parallel is not a one to one parallel because the US is a sovereign fiat currency country and Greece is not because of their membership in the EU and use of the Euro. As a result, federal spending in the US does not depend on, nor does it even rely on!, revenue from taxes or cuts from other programs. Both political parties have failed to grasp this with the exception on outliers such as Sanders that appears now to be influencing Biden. Your earlier remark on tools, though, is very important as well as clear metrics to guide these tools. For these to work accurately, we need to know the correct setting which is unlimited federal spending as a sovereign fiat country with a currency with the highest global value.
Anthony (Orlando)
"(Americans of a certain age don’t have to imagine this; for a while, we lived in that economy)" I lived through that period as a young just started working man. Now a lot more educated and experience I think deliberate policies created that. We fought the Vietnam war with out raising taxes. The massive inflation I saw was to inflate that debt way. That put the tax burden in a sneaky way on those who could not just raise the price of what they sold in the economy. It placed it on worker's (labor) and off the rich whos wealth and income are passive .
John Brews (Tucson, AZ)
Of course, panic is not a good thing. Unfortunately, neither is polyannaism. And at the moment things like zero interest rates and rapidly rising house prices are not optimistic signs.
Jerseytime (Montclair, NJ)
Many here are quite upset with Prof. Krugman. They are convinced that the US will be the Weimar Republic in the very near future. But not one has indicated what should have been done instead of the rescue bill. Are we to assume that children not eating or millions being evicted is OK with them? Or yet more businesses going belly up is fine too? It is also interesting to note that none of them discuss the trillions pumped into the rich and corporations from the 2017 tax bill, and potential inflationary pressures from that. Nor do any, in their grievous concerns about spending outpacing money at hand, suggest that the 2017 tax bill be repealed, so as to help balance out the equation.
Got to sensibly raise taxes on the wealthy by closing all the loopholes. I think if the public feels that the tax system is fair, raising taxes won't be too unpopular. But as long as people like Trump pay only $750, any attempt to raise taxes on the general public will be resisted at the ballot box.
Dink Singer (Hartford, CT)
"That’s why Fed policy generally ignores the headline inflation rate and instead focuses on a measure that excludes food and energy prices." This is mistaken. While the Fed policy makers do pay attention to the change in the price index for personal consumption expenditures excluding food and energy, they have set the 2% target for the change in the top-line price index. One reason for looking at the so-called "core" is that it is a leading indicator for future change in the topline.
Jerseytime (Montclair, NJ)
@Dink Singer OK, I'll admit it. I have no idea what you're talking about. Could you restate it in laymen's terms?
AK (Cleveland)
All the spending is good and needed. But inflation will come a few years down the line like it did after the big spending post WWII that ended the gold standard was gutted. Which again was not a bad thing, but just what inflation can do. This time it will risk US dollar's status as the preeminent reserve currency. This can be voided if the excess is liquidity is withdraw when we are out of COVID led downturn.
Michael N. Alexander (Lexington, Mass.)
Remember Mitch McConnell’s cynical pledge to do everything in his power to ensure that Barak Obama would be a one-term president – that is, to win Republican majorities in upcoming elections. That’s his playbook today — undermine Biden, disrupt his programs, make him look like a failure, and defeat Democrats in 2022. Bear that in mind when Republicans insistently warn about potential inflation.
JPGeerlofs (Nordland Washington)
Where does housing come into all of this? Here in the NW, housing (and rent) has gone through the roof. Supply demand—not enough new houses and apartments being built. Since housing is such an important part of monthly expenses, I’m not sure why this isn’t included in the inflation calculation.
Pete (TX)
Many shortages (lumber, used cars etc) are COVID related. The so-called conservatives who are crying wolf about inflation encouraged the anti-vaxxers and anti-maskers who are prolonging the effects of COVID.
Groucho marxist (Canada)
@Pete Don't forget the effect of Trumpist ignorance in imposing tariffs, for example on building materials like lumber from the Great Satan of the North, Canada. That increases the cost of building anything.
landless (Brooklyn, New York)
The only inflation that worries government seems to be rising wages. Rent, child care, food, transportation, medical care -- these have been going up during this "low inflation" period. Minimum wage has not been raised because of some fear that small businesses and Walmart would be impacted; the real discussion should be: can the US survive with an economy based upon fifty percent of workers earning less than twenty dollars an hour?
Contrary DAve (Texas)
I am old. I spent twenty years or so trying to figure out why inflation went from 9% to 2% at the same time that total debt/GDP went from 33% in 1981 to 66% in 1995. Then I looked at my own behavior. My taxes went down and I bought US bonds. The biggest different between taxes and debt is who makes the decisions. Uncle decides who pays taxes. We decide who buys bonds. The economy works better when a higher percentage of the decision comes from us. (Or foreign countries with dollars to spare.) There is a simple reason why this works for us. US bonds are the safest investment in the world.
a.p.b. (california)
It's always amusing to me how people who tell us not to worry about inflation have nice beefy incomes that are pretty much guaranteed to grow faster than the CPI. But people who have to rely on savings or Social Security in their older years tend not to be so sanguine, as they are the collateral roadkill on the path to the country's alleged economic salvation. Even the lower 50% or more suffer more from inflation than the affluent, because they do not have the market power to command wage increases that even keep up with inflation. Don't worry, be happy. That's the new theory for the new world order. Harrumph.
Richard Walcome (Port Townsend, WA)
Paul, I also remember the Carter malaise where inflation was very real. Last July a well know national company quoted a price for a warehouse I need. The timeline for them was too far out so I shopped around but could not find another company that could begin any sooner. I went back to the same company just yesterday and the quotation jumped 42%. Building materials are skyrocking
Bevan Davies (Kennebunk, ME)
The only thing that might explain Republicans’ current opposition is that they want Biden to fail; they don’t care how many people get hurt, they just can’t stand the idea of a successful Biden presidency.
Paul (California)
Inflation numbers have been boogied, fixed, and simply understated. Hedonics and Federal Reserve management of the numbers has left the inflation number consistently wrong. And excluding key items like energy and food (we all need to travel, drive and eat!) is another way the fix works. Inflation is the slow tax that govt uses to cover up its failures. The ARP is a shotgun blast of money over the economy - not aimed primarily at people in need, just a jolt of cash to get people spending and buying imported goods. So the jobs benefits of ARP will be small. And our kids will wonder why a six pack costs $10. So inflation is what happens when govts fail. Low taxes feel good but the debt comes home to be a burden for our children and our retirement. Nothing is free!!
Jerseytime (Montclair, NJ)
@Paul Its simple. Repeal the 2017 tax bill and reinstate pre-Reagan rates on the upper brackets.
South Of Albany (Not Indianapolis)
I wish a six pack would cost 10$!!! More like 17$ in NY.
Reality (WA)
@Paul A six pack already costs $10.
mather (Atlanta GA)
I've come to the conclusion that inflation fears are the macroeconomic equivalent of waiting for Godot or my brother to pick up a check. The first never arrives and the second is not going to happen anytime soon. Wealth concentration, economic rents and industry concentration make high core inflation very unlikely. And even if I'm wrong, a blip in inflation while the economy is growing can easily be addressed by the Fed. After all, stagflation is supposed to be high inflation with LOW economic growth, not high inflation when the economy is booming, right? So why worry (I'm talking to you Larry Summers)?
Josey (Washington)
I'm having trouble wrapping my head around this issue. I don't see how we avoid inflation when both the public and private sectors are accruing so much debt. Certainly, the price of stocks is an indicator of inflation. Housing prices are up, too, even while I see large numbers of people near me living out of vans or trailers or in tents in the woods. Most of the income generated by America goes to the very rich, who are shielding those profits in off-shore accounts or in equities. That's a practice that soaks up a lot of inflation. But at some point, we'll have to pay our bills. With this much overhanging debt, even small increases in interest rates will become unsustainable. Then we'll have to inflate our currency to stay afloat.
Jerseytime (Montclair, NJ)
@Josey First step: Repeal the 2017 tax bill and reinstate Pre-Reagan rates on the upper brackets.
OneView (Boston)
Paul, first, in 2010-2011 the US was still emerging from a severe fall in aggregated demand. It is nothing like the fall in demand we saw related to the pandemic which was related to access and supply, not willingness to pay. Those factors argued for large stimulus to encourage people to buy to bring up demand. There is no lack of demand in this economy, if anything we have PENT UP demand as following the cessation of rationing after a war. Aggregate money saved or invested because it was difficult to buy "dining out", "travel" and other items as well as a general concern about the path of the pandemic. Secondly, the stimulus applied in 2009-2010, as you have rightly pointed out, was a fraction (maybe 25%-35% of the amounts pushed into the economy over the last year). Even if the impacts are the same, that 4% would multiply to 12% or 16% inflation. Finally, you mention only goods in your discussions whereas the greatest area of inflation already in place is first in assets (houses, equity markets) and in SERVICES (contractors, builders) where pricing is NOT STICKY, but moves rapidly in response to changes in demand as each "contract" is priced at current market conditions and there are no "import substitutes" to increase supply. We are in a very, very dangerous situation where massive amounts of cash are likely to either create demand in goods and services or spike the prices of risky assets as that money seeks higher returns.
Jerseytime (Montclair, NJ)
@OneView Perhaps. But what should the nation do in response to high unemployment, incipient business failures and a large segment of the population of the verge of eviction? Nothing?
Republi-con (Michigan)
Mortgage rates are below 3% for a 30-year mortgage. My bank savings rate is below 0.1%. CD rates are below 0.2%. Even if rates go up a tiny bit to slow down inflation (if, in fact, inflation goes up)... I think we'll survive.
maguire (NEPA)
Too many people chasing too few jobs due to automation/digitalization the economy No need to worry about wage inflation.
nzierler (New Hartford NY)
What Americans decide to do with stimulus money will determine whether we will see an uptick in inflation. Some of the money will be spent on things the pandemic suppressed, such as vacations and dining out. People who enjoy a cash surplus may be less likely to hunt for bargains, which could drive up prices. That's what is happening with the costs of housing and gasoline. Increases in demand could outpace oil producers and house builders ability to increase supply, and people demanding more have money to burn. That's the classic recipe for inflation. Rapid inflation is always an albatross for presidents in power. Biden is riding high now but if inflation comes back in force, he won't be there for long.
larkspur (dubuque)
The cost of owning a home including maintenance and modest improvements goes up steadily. New home construction is almost exclusively in the price range well above median. Try to find a new housing complex in the mid $200k range,,, even anything below $400k. A 2x4 costs $4 at Home Depot, larger framing lumber over $30 for a usable length. Roofing is $1.25 / sq ft out the door. I'm buying some nice new windows about 3' x 4' to replace my hand built 70 year old frosties. They cost $1000 ea. I see no end to this ever increasing housing price until there is another dire recession.
adam smith (California)
Unwanted inflation may not necessarily be an immediate threat to the American economy but the trend in fiscal and monetary policies are frightening in terms of the slippery slope concept. We are seeing what appears to be a whole series of multi trillion dollar programs going on ad infinitum, not funded by increased revenue. The great sociologist economist Max Weber demonstrated quite decisively that differences in occupations, incomes, and wealth of various groups are caused by differences in attitudes toward the work ethic and other differences in values. They are not caused by discrimination and persecution. In fact the persecuted Protestant sects in Europe were the very same groups that did the best in terms of incomes and wealth. It is a matter of different values that caused the differences in income and wealth. Government spending to undo "racial inequities" which are really due to differences in values, are likely to be futile for that reason. But the government spending to rectify racial inequities increases the national debt and the risk of unwanted inflation and lower real incomes for everybody.
Callum (Melbourne)
@adam smith Max Weber's work was notable for providing a bold attempt at an economic history of Europe and America and linking it to religious differences, but it did not "decisively demonstrate" anything. He had limited access to data that we do now, much of his work was essentially assertions based on broad national generalisations, and many many sociologists, economists and historians have revealed that the picture is far more murky than Max Weber could have been dreamed. The reasons for these differences remain widely contestes So not "decisive" at all
adam smith (California)
@Callum The persecuted religions were the ones who had the highest incomes and wealth. I think Weber demonstrated that quite decisively with actual statistics in his footnotes. In addition to Weber, there is a huge amount of evidence that persecuted races and ethnic groups, like Asians in America for example, frequently do the best in terms of incomes and wealth because of a strong work ethic and attitude towards careers. I think the total evidence is actually overwhelming.
adam smith (California)
@Callum Different religious groups had distinctly different occupational, income, and wealth experiences. Weber showed that these were a function of different values, and not "racial inequities."
MKR (Philadelphia)
Holy nattering nabobs of negativism.
Ski bum (Colorado)
My experience with inflation is the same as yours professor. The 1970’s and early 1980’s were hell: interest rates over double digits, home mortgages were constrained unless one could assume a previous loan at lower rates, and an economy in a mess from Republican (Nixon) price controls. Another case of Republicans leaving a mess to be cleaned up. This time interest rates are near zero and negative in other countries. We have plenty of room for some moderate inflation in the short and long term. Many of us are tired of only being able to invest in equities because fixed income instruments carry no real return. Another Republican mess left to clean up. The $1.9 trillion investment in working America and pandemic relief will certainly increase inflation to an extent, but the economy will benefit from it. As an aside, a quick fix may possibly be to raise taxes on the rich to offset the ARP spending and pull an equal amount back out of circulation; a Robin Hood transaction sort of speak. There you have it, another Republican mess solved.
Mr Isaac (Los Angeles)
Larry Summers was crushed by Krugman on telly this weekend about the inflation issue. But Summers showed that even on the left there are those that want to support Wall Street over Main Street. Keep at it Paul; your voice of reason may yet prevail this cycle.
Jack (Singapore)
Whether inflation materialises or not has nothing to do with the administration in the White House or its leanings. But it does have everything to do with the fundamentals of the US economy. Amid such a significant downturn, massive public spending to help preserve output - and employment - may seem intuitive to most. There are also many who contend the US should have conducted this type of domestic stimulus years ago to revitalise the economy/meet infrastructure needs. All these are valid arguments. However, history tells us that when money printing increases too quickly - and drastically - inflation will propagate. I understand the situation Biden has inherited. The neglect of America's middle class spans multiple administrations. He has also stepped in during the worst contraction since the Great Depression and needs to be seen as doing something massive (like Roosevelt in the 1930s). But the difference is that in the 1930s the US financed its stimulus through *borrowing* not through money printing as it's now doing. Such drastic money printing is bound to be inflationary as the examples of Peru, Brazil, Zimbabwe and Weimar Germany show. This is the unfortunate truth. Also, the rate of money printing in 2010-11 was much lower than now. The gradient on the US money supply graph has become much steeper since the first major stimulus. With too much excess money in the system chasing too few goods (think another virus wave affecting production) you'll get hyperinflation
Tom (Gawronski)
Mr Krugman, you must have a constant headache from beating your head against a wall, but please keep it up.
fed up (las pulgas)
Apparently, the author neither has heard of the pending Great Reset nor does he follow screaming Liberals, like John Kerry, who is So excited about it.
Chuck (South Carolina)
Perhaps the author should share this column with his colleague Larry Summers.
James Ryan (Chicago)
Goodness, what a lot of armchair, henny penny economists come out of the woodwork every time Kruger writes a column.
Michael (Austin Texas)
Making businesses pay their share of taxes and stopping corporate tax avoidance would be an excellent first step. It would be deflationary by taking "hot money" out of the economic systems. Continued scrutiny would reduce deficits over the next decade. My income is reported to the penny to the IRS. I see small business owners stuffing cash receipts into their pockets, using vehicles with business logos on the side for private purposes, filling up their gas tanks with their business credit cards...etc etc. Of course the major economic premise of the republiklan party is tax avoidance. If they want to avoid paying taxes they should live in Afghanistan or Syria! Vietnam Vet
Steve (Minnesota)
John Boehner couldn’t even get the Republican talking points correct. He said, “Ben Bernanke, is defacing inflation.” Will Rogers was right! People only vote for the candidate that is dumber than they are. John Boehner is dumber than over half of the population of Ohio.
Steven (New York)
What’s another two trillion to “rescue” America? And let’s go for another three trillion on infrastructure? And of course the big kahuna: thirty trillion on the green new deal and Medicare for all! It’s just money. Print on! What could go wrong?
Jerseytime (Montclair, NJ)
@Steven The Green New Deal does not exist. Until it does, lambasting folks for it or its cost is a fool's errand. As for the rescue plan and proposed infra structure bills, here's the questions: 1- How do we deal with millions unemployed and on the verge of eviction, and many businesses teetering on bankruptcy? Should absolutely nothing be done? 2- How do we deal with extensive, long delayed improvements and repairs to our national infrastructure? Should such again be delayed or ignored?
Capt. Obvious (Minneapolis)
God, I'd wish you'd gone to work in the Biden administration, so you could preach to the congregation instead of just the choir.
charles (new york)
Paul Krugman is talking his politics not economics. Look at your own basket of goods. Then decide if inflation is rearing its ugly head.
Jerseytime (Montclair, NJ)
@charles Prices have been going up steadily forever. "Low" inflation has never meant no inflation. I've not noticed any massive change in prices at the supermarket. But yes, they do keep going up over time.
Brian (San Francisco)
Only other countries get to have nice things apparently. Places like Scandinavia and New Zealand get to have governments that work for average people. Here in America, we can only expect a government for rich people. It's baked in to the argument against middle class politics/economics. Otherwise too much debt apparently. It's a mighty convenient argument if you're rich and control the media infrastructure.
Jerseytime (Montclair, NJ)
@Brian Those nations still make sure that average workers get paid decently and have healthcare that is not extortionate in price. In the US, our "leaders" decided 40 years ago that we would not emulate other first world nations on wage and labor issues, but rather seek to be like a third world nation. Thus all policies these past decades have worked to lower wages and benefits, and healthcare is highway robbery. We should be looking to increase wages/benefits so that direct government payments are unnecessary.
Prometheus (Caucasus Mountains)
Dear Dr. Look, the gov’t has called your hand by releasing Trillions of $$ out into the economy. The cards have been dealt. The true mechanics of $$ will be witnessed Time will prove you wrong or right. I hope I’m wrong, but I think you are wrong If I’m right the middle class and poor will suffer horribly....... the rich can giggle at inflation.
Charles Becker (Novato, CA)
Re: "... the prices of labor, that is, wages and salaries — change ... just once a year.... stagflation ... mainly involves these “sticky” prices." Even disregarding the vastly larger deficit spending this time, by that intuition we're okay as long as wages don't rise. But the data doesn't support that. The episodic stagflation of 1971-1983, occurred during a time of essentially flat wages* What does correlate to that period was a brutal, almost instantaneous increase in the price of oil**. I was a mariner at that time I clearly recall SeaLand's entire fleet of SL-7 container ships being obsoleted overnight, along with most of the rest of the US flag merchant marine. I'm pretty sure the same thing happened in many other industries. How long does it take for entire industries to adjust? The evidence suggests that sharp energy price shocks cause stagflation. The other issue is that during our first sustained wage increases in 40 years, during 2016-2019, inflation was entirely absent. I conclude that the "sticky wage" hypothesis may not be sunk but it's taking on water. * **
Alan Jones (Chicago, Illinois)
Not to worry about the GOP seizing on any form of data---the party has truly moved beyond data into the mystical land of a country freed from hard data, a land of conspiracy theories, laser beams, hordes of terrorists crossing the borders, a land where guns and ammo rule the day.
Me (Miami)
Inflation is real, NOT anecdotal. Look around you you at Costco, the gas station or any real estate’s already happening. “You don’t need a weatherman to know which way the wind blows” comes to mind.
Jerseytime (Montclair, NJ)
@Me How can this inflation you speak of be blamed on money that is not yet in anyone's hands? And were you as worried about "overspending" when Congress passed the 2017 tax bill that gave the rich and corporations trillions in money they no longer owed the government?
Matt (Oakland CA)
Larry Summers, Mr. Krugman? It is useful to put names to whom one refers, beyond the usual Republican blob.
WJL (St. Louis)
Remember MBS is trying to jack up oil prices in retaliation to Biden's release of the CIA report.
Christopher (Atlanta, GA)
I’m witnessing a concentrated effort from Republicans, Trumpers on financial blogs, and on right-wing media to manufacture the “run away inflation ” narrative now that we have a Democratic president in the White House. This is another disinformation campaign that seeks to destroy and malign Biden’s and America’s much needed Infrastructure Bill . These are the same people who had zero problem with the national debt rising to almost $7.8 trillion during Trump’s time in office. But now that Biden’s in office – suddenly deficits matter again. This cynical behavior to trample on new shoots of economic growth from carefully planted seeds–just because your political party failed to do so when they were in power– is the epitome of anti-Americanism and anti-capitalism.
Quinn (New Providence, NJ)
@Christopher Recall that George W. Bush cut taxes while waging two wars and the national debt ballooned. The first year Obama was in office, the GOP started railing about the deficits and debt. My mother-in-law claimed Obama was spending us into oblivion. My response was, "you weren't worried about the $10 trillion that Bush ran up, why are you worried about the eleventh trillion?"
HenryK (DC)
@Christopher I’m not convinced this is true. Unleashing public demand at this scale when private demand is expected to recover is normally inflationary. And a fiscal expansion that triggers primarily inflation is wasteful and potentially destabilizing. I understand the politics of this, but the economics are of as cleanly in favor of a large stimulus as they were in, say 2009. Someone who wants to spend this much should raise taxes.
Christina L. (California)
@Christopher This cynical behavior is also anti-American and makes me think that Putin and other enemies of America are feeding the fear of the far right outrage machine. I see it on social media platforms like FB and Reddit. Republicans are traitors to Americans— they’d rather sabotage our recovery and success than allow credit to go to Democrats. They’re amoral.
FOR Love Of Country (FLORIDA)
As senior citizens we'd like to see some interest paid on our money market funds account. Would that be inflation? I think I got more interest on my savings passbook when I was in elementary school!
not my ancestors (Canada)
The rich have figured out that if they can contain interest rates, hard assets inflate exponentially. They contain interest rates through sleight of hand. Low interest rates contribute to low housing cost inflation, because they measure the cost of carrying housing rather than the cost of purchasing housing. This means that raising interest rates will raise inflation rates--lowering interest rates lowers inflation rates. The very point of raising rates to contain inflation no longer holds true. I'm not sure when they changed how they measured inflation but the formulas have been tweaked very often over the years, seemingly to always to reduce the measure of inflation which is the only thing employers use to raise wages for working people. The rich have rigged the system.
Doug Poole (San Diego)
I think you nailed it.
hen3ry (Westchester, NY)
People are not panicking about inflation or deflation at this point. People are worried about keeping their jobs, paying the bills, putting food on the table, staying healthy, getting vaccinated; in short they are worried about living. The ones worrying about inflation or the national debt are economists some of whom let their political views interfere with what might be good for most Americans. And then of course there is the GOP, the party of Greedy Overpaid Politicians, that subscribes to the belief that no amount of wealth or power is enough. We worry about our pay not keeping up with the cost of living where we live. We worry about a shortage of affordable housing, the cost of a college education, how high our health plan deductibles are, if we'll survive the latest bout of unemployment. Inflation comes into those concerns but not the way it's described here. We don't care about core inflation. We don't care about prices over the long run when we don't have enough for next month. Part of this is due to the easy availability of credit and, in this reader's opinion, the fact that credit card companies make it all too easy for us to run up our bills. Perhaps what we really need is worry about too much credit and too little pay. But it seems that our lawmakers don't have the spine to take on the financial industry in any area unless it's granting them a reprieve from penalties they deserve.
Just Wondering (SF)
The return of troublesome inflation has been a losing bet for 40 years. Indeed, for most of the past century. We should try to remember the ‘70s for bell bottoms and mullets, and pray that is what never comes back.
Roots (Earth)
UCLA economist Armen Alchian argued in an LA Times opinion piece back in the day that inflation, properly defined, has only one cause--an increase in the money supply relative to the sum of available goods and services. Nothing else is "inflation," it is merely variation in supply and demand. I was expecting significant inflation after 2008-2009, and have never understood why it did not come. One explanation I've heard is that the unequal distribution of wealth meant that much of the money supply is actually not in circulation, where it can drive up prices--it's just hoarded. Is that right? If so, the economy is badly out of whack.
Expat (Zurich)
The markets are already pricing in inflation. The 10 yr Treasure yield climbed from 1.12% one year ago to 1.74% today. An increase of 55% in one year It will be a fight between the Fed and the market, when inflation kicks in (and it IS already arriving, check home prices) And the smart money is bets that the Fed will not be able to override the money Mr. Krugman is entertaining to read, but his history of understanding fiscal and monetary policy is not encouraging. For 2 decades he misdiagnosed Japan, eventually apologizing (sort of) in the NY Times "Apologizing to Japan" NY Times Oct 30, 2014
JBAD (lake tahoe)
The key sentence in this article is this: "... both the new Obama administration and the Federal Reserve tried to stimulate the economy, spending hundreds of billions on a variety of programs while buying trillions in bonds." "Buying trillions in bonds." !!!!! Bond holders were protected in the previous crisis. Because bond holders are the rich. They are the one percent and the 3 percent and the 5 percent. And those rich people vote republican in much higher numbers. But we no longer have a republican senate. And we have a president who is pursuing an agenda of redistribution. Biden is attempting to mitigate the presposterous level of stratification. Good for him, Bravo. Kudos. Good for America long term. But.... Bond holders may not get bailed out this time, and interest rates may rise significantly, and that's inflation. It's certainly good advice, "not to panic." It's also prudent to take on long term debt at fixed rates, pay that debt with inflated dollars, keep your bond holdings short term, and stay globally diversified. Panic is never good. It's reactive. It's better to act than to react. And my advice is to act with an increased possibility of inflation in the medium term.
Tom Rowe (Stevens Point WI)
Thank you Paul Krugman. Always the voice of reason and its why I think of you as my financial guru (not that I have all that much money or any investments).
Joseph (Boston)
Hellloooooo??? Asset inflation!!! The CPI really hasn't changed to any extreme degree, but basic cost of living elements like housing have shot up wildly, as have stocks (which is of little comfort to the majority of Americans who don't own them and have dealt with stagnant wages). It has been irritating and frankly exhausting seeing all these left wing wonks insisting "you're crazy if you're worried about inflation! We haven't had any!" Yes, that happens when you base everything on an imperfect metric that fails to capture where there's damage in our economy. Do I need to lecture you on the similar problems we have when measuring unemployment?
John from NYC (New York, NY)
@Joseph let’s stop this left wing wonks vs. right wing dinosaurs and anchors. The fact is that Economics is not left wing or right wing, policies are. Fact, the 2017 tax break, just like any tax break from the right wing dinosaurs no longer jump starts or help the economy as it did 50 or even 25 years ago, back then, there was no China (as a serious economic competitor), no EU as a true integrated (sort of) economic block, there was no e-commerce, internet or the sort. As a matter of fact, where is the $2T that benefited mostly the top 1% and large US Corps? Where is the money that was supposed to “trickle down” (the perennial right wing mantra, a fallacy)? Why wasn’t the 2017 tax breaks used to help the economy during the first months of the pandemic? But, going back to my original argument, China, the EU, e-commerce, etc., have an effect on prices and therefore inflation or CPI. It is time to adjust economic principles to the new world economic reality, i.e. games stop vs. Wall Street. One thing is for sure, NO ONE has a crystal ball and NO ONE can foresee the degree by which prices are going to increase and by when. That’s why I love Economics, because, “it depends” (for those who are in the field). I will make a friendly wager, I say, I do not foresee a permanent runaway inflation. If I lose, I will vote Republican for the next two elections, but if I win, everyone who has ever voted Republican must vote Democrat down the line for the next two elections, anyone?
AWENSHOK (Houston)
Let the Big Box store price gouging BEGIN!
JD (Elko)
In the 70s my mom worked for a company that wanted to give its employees a raise but due to wage and price controls instituted by Nixon they were constricted from doing so. They found a solution by giving all of the employees a 1000$ Annuity. When she retired in the the late 90s she got 175$ a month until she died in 2016. I’m positive that someone at the insurance company that held that annuity was not a popular person if you figure out that over the years that 1k turned into well over 50 k. She was always happy that she never sold it as the company requested her to buy the annuity back at least every 6 months and they never offered more than the original amount
Karen Hobgood (Springfield, VA)
How to not panic about inflation? Consider where all the Chicken Little (The sky is falling! The sky is falling!) talk is coming from. Hint. The same place it ALWAYS comes from. So-called fiscal "conservatives".
charles doody (Portland, OR)
@Karen Hobgood "Fiscal Conservatives" when a Democrat is in the White House, do not exist in nature when a republican is POTUS. Of course there's no fear of monetary inflation with $1.5T tax giveaways to the uber rich, because they just use it for stock buybacks to inflate stock values. I should amend my statement, as in that scenario, there is an element of inflation, but it is limited to luxury goods, rare art, and 5th houses, and the assets of the wealthy are increasing in value faster than the prices of the toys they buy anyway. The whole inflation scare is based on the fact that the 0.01% simply don't like seeing any shift back away from the conditions that have accelerated increasing economic inequality between wage earners and the asset class. They will stop at nothing to keep the perpetual cash extraction machine they've created sucking the wallets of wage earners.
sjs (Bridgeport, CT)
@Karen Hobgood Having lived through the inflation of the 1970's, I will tell everyone that is no joke watching your savings melt away. But I totally agree with you - this is mostly a right wing ploy to attack Biden.
Ok, but I haven't really seen popular press describe how damaging inflation can be, especially for those with lower incomes. This is an important consideration for people to make an informed decision about the risks, rather than simply rely on experts. As correctly stated, "Americans of a certain age don’t have to imagine [stagflation]; for a while, we lived in that economy"; this also correctly implies that anyone born after the mid 1970s will have no personal experience with inflation. A description of the damages, perhaps along the lines of this article's professorially explained inflation observations (like core vs. headline), is still missing from popular media's coverage.
Smilodon7 (Missouri)
No, we’ve just had to live with our wages stagnating since 1970.
TRA (Wisconsin)
It has been the trend for some decades now, that the economy does better during Democratic administrations, but that doesn't stop Republicans from preaching impending doom due to the programs of these "left-wing Socialists". It only goes to show how far to the right the Republicans have drifted, when such things as a country's healthcare system, ours being by far the most backward of any "modern" nation on the planet, is still reviled as socialized medicine, when it is patently no such thing. Mr. Biden's so-called leftist agenda is quite moderate. It is only "radical" to out of touch Republicans. Will they ever catch up?
Emile-Victor (NorCal)
The purpose of taxes should be to have a government that will serve it's people, especially when they are in need. After the great disaster that has fallen on our world, we need to have that help. Fortunately the people of our country saw through the trumpist, right wing flim-flam and has elected a party that is attempting to provide that help. The Republicans would love to put the brakes on that assistance, only because they do not want their illogical dogmas to be shown to be false. If a short term bout of inflation is a price to pay, it can be endured. It would be much better than the right wing inaction that we have recently experienced.
mosenblum (Illinois)
Inflation? Let's not fret prematurely. We just need to get the economy going again. Period.
John (Upstate NY)
It looks like Professor Krugman is beginning to walk back a little bit his regular insistence that we need not worry about inflation while the newly-minted trillions start flying around. Is this whistling past the graveyard? Now he says that we are free to pick and choose among the various *kinds* of inflation and the cooked-up methods used by different agencies to put numbers on them. At least he is admitting that inflation, like so many things in the economic world, is greatly impacted by human psychology, way more than it results from the rational actions of self-interested individuals as described by mathematical algorithms. It's so hard to make predictions, especially about the future.
Emory (Atlanta)
We have been keeping up with the bills. Send us 5,600 and it goes into new brokerage account to risk on stocks my friend is buying. In 6 months, boom. We will have gotten out first, then half the gains saved for taxes, the other half for new car loan. Then affair with Morgan Fairchild. That's the ticket.
The Rational Libertarian (NJ)
Many economists are confusing a supply and demand problem with housing and food with inflationary pressure from monetary policy. The simple fact is COVID has increased demand and hurt supply for those things. A problem that resolving COVID will correct pretty quickly. Our biggest danger is failing to go big enough right now. We are treading water and putting off real pain with temporary policies and when COVID is gone that bill will come due. LOTS of jobs and businesses are NEVER coming back. Unemployment will remain too high for years and there is a HUGE crisis coming from deferred rent and mortgages that must be addressed. What we need to worry about is Failure to Act will produce not just a recession but a bona fide 1930's style Depression with mass homelessness, even higher unemployment and a stock market that can no longer defy gravity.
Smilodon7 (Missouri)
Housing was too high long before COVID
NYT Reader (Bay Area, Ca)
Hopefully the Republican's new mantra regarding inflation will not actually cause inflation. Much of what happens in the market to me appears to be based on what people think is going to happen based on what they hear, not what is actually happening. The other thing about inflation that Mr. Krugman doesn't mention is that I think inflation makes consumers buy more. Why wait to purchase that house or car if it will cost more next year. This is good for the economy, but not so good in that it can cause more inflation. I don't know enough to have an opinion one way or another about whether inflation will set in, but I sure find it intresesting to track the Republican talking points and their use of this one to make the Rescue America investment a scary thing, instead of the incredible accomplishment it is.
Harley Leiber (Portland OR)
I lived through and endured the period of inflation during and immediately following the war in Vietnam. It had varying degrees of impact. I was new to the work force and concerned with paying the rent, buying groceries and gas and surviving month to month. As I recall, The Vietnam War inflation spiral stemmed from an outsized federal budget deficit and an overheated economy. LBJ wanted to fight the war and begin new social programs, but was unwilling to raise taxes to pay for both. Then Nixon tried to dampen the inflation by slowing the economy. The result - the recession of 1969-70 - didn't have much impact, and prices began accelerating again. On a personal level, as my hourly wage increased my concerns about paying for essentials lessened and I was able to save money every month. My purchase of a Sony Trinitron color television in 1977 was a true extravagance at $500.00. Today, that same TV would be less than 200.00. But, the truth is that purchase would not have been possible, at all, without my federally subsidized job ( CETA program).
TahoeDon (Incline Village, NV)
Inflation has already reared it's ugly head with the drastic decline in the value of the dollar during the past year. By definition if your dollars buy less of the same goods as one year ago you've experienced inflation. So, whether you like it or not we have seen a pretty big jump in inflation and the continued decline in the value of the dollar (mainly as a result of excess money printing) is likely to continue into the future. Remember, the Fed is not actually buying $120 billion of treasury bonds every month, they are simply making check book entries. With debt levels already unsustainable, the US Government is simply trying to inflate it's way out of a disastrous long term debt problem That only works until the rest of the world wakes up and decides that dollars should no longer be the primary reserve currency. And when that day comes in the not too distant future our country and our economy will be in for a rude awakening.
DanG (NM)
Duh. This all makes perfect sense except for one thing. If companies start believing that "sticky" prices are rising, they will raise their cost expectations accordingly, thereby creating inflation. All this takes is belief. So if belief of inflation takes hold, actual inflation will occur. We can't control belief, so we can't control inflation. So despite assurances, it could very easily happen.
Edward B. Blau (Wisconsin)
As long as the US dollar is safe here is the most rational place to park your money. I was certain the three trillion dollar cost of he senseless war in Iraq and the two trillion dollar tax cut for the rich would cause interest rates and inflation to rise but it never happened. The average consumer has not seen an increase in real income for decades. If producers raise prices significantly people will stop buying.
Scdoc (South Carolina)
The 1.9 million dollar stimulus is just a start. With proposed trillions more spending on infrastructure, forgiving student loans, health care etc, at what point will the unprecedented escalating debt will an issue? It may be downplayed now but I wish Paul Krugman would address this. It reminds me of Barney Frank’s comments during the housing crisis, knowing the great risk of subprime loans said “I want to roll the dice”. Are we rolling the dice now.
The dollar is causing the unbalance due to the massive US fiscal fraud in Europe, equivalent to 20 % of the EU budget annually. And the dishonest invasion of US firms in Europe. The cash escaped back to the USA through opaque offshore banking in the Caribbean is reinvested in real estate and buying European companies fragilized by the US invasion. All the biggest US corporations are fiscally registered in Europe. Apple, Amazon, Yahoo, Google, Facebook, Starbucks, Netflix, and many others.
homo sapiens (Pasco, WA)
Stimulate the economy? What economy? My governments' idea of an economy for the last fifty years has been a Frankenstein monster who or which works for no one except the very rich, and not even very well for them. C'mon, there aren't enough gigawatts or trillions to bring this patchwork of poorly thought out policies to life, and if it is brought to life, it will kill us all with global warming. Poorly hidden behind all this questionable policy talk is bad decisions made early on in the Industrial Revolution which requires countries and continents to repeat bad decisions to survive politically. But that concept guarantees they will fail economically. What economy? This one, with or without inflation, depends on a vast military to steal the 71 raw materials needed to allow North Americans and some in the United Kingdom to do as they please and get something for nothing. Please tell me, Mr. Krugman, how long this will continue?
W Marin (Ontario Canada)
I was happy to read this bit of reality based optimism because what happens to the U.S. economy generally spills over into Canada. I'm also hoping that a couple of your strongly opinionated but non-economist colleagues (who shall remain nameless) will get over some of their inflation fear. Of course this hope is predicated on their actually reading your column, something which experience suggests doesn't often happen.
Jim Brokaw (California)
If "inflation" is a target at 2%, and it is driven by annual wage increases, then there is no danger of -my- wages pushing it up... I'd consider it quite nice to get a 2% annual increase, which would be bigger than several in the last few years. Of course my rent, gas, food, and other costs to -me- have gone up more than 2% annually over the last few years, but that's just 'how it is' in our wonderful economy.
Amy Lincoln (Boston)
Economic science changes over time, with different theories leading to differing deductions. For example, some theories use the labor theory of value, and others a newer theory. Hence, differing economics science theories lead to differing opinions on whether large government deficits might cause price increases. If that is the basis of the different opinions, then the question can be decided by choosing the correct theory. As to the worry about "debasing" the dollar, that might not be significant since we can use euros, yuans, yen, British pounds or a "crypto-currency." By stopping using dollars, opening bank or credit union accounts denominated in safer money, we can avoid being harmed by its debasement, regardless of which economic theory is correct.
rjs7777 (NK)
@Amy Lincoln LOL, one problem. We cannot borrow other currencies at reasonable rates of interest unless we intend to PAY IT BACK fairly quickly. Our US Fed cannot arbitrarily print Euros or Yuan. We would have to earn that money with hard work. Doing away with Dollar borrowing entirely would be a profound shock to us versus the 3-7 trillion we are borrowing now. The government would probably collapse. This possibility is greatly amusing to China.
Charles Tiege (Rochester, MN)
First, imagine that corporations raised prices mightily, and workers demanded and got wage increases to match those prices. Supply and demand would remain in balance, but bad side effects of inflation would filter throughout the economy. Second, imagine that corporations raised prices mightily, but this time workers in a post-union, automating economy, could not get wage increases to pay those prices. Goods would remain on the shelves until prices came back down to where workers could again afford to buy them. Which scenario better fits the post-Reagan United States? And which scenario is more likely to fit our future?
Granger (Toronto)
Let's hope Mr. Krugman is correct. But I fear his analysis is colored by magical thinking. Congress passed and Trump signed a $900 Billion stimulus package in December. Congress passed and Biden signed another $1.9 Trillion in stimulus spending just two months later. Now the Democrats are proposing an additional $3 Trillion. The assumption is that trillions upon trillions of dollars can be created out of thin air and spent by the US government with no negative consequences. If this is true, why stop there? If there are no practical limits to almost incalculable government spending and debt, and no end to the social goods that can be achieved by this practice, why not double or triple down? Imagine the possibilities.
John (Louisiana)
"Don't panic about inflation" Someone hasn't bought a house, gone to college, or purchased healthcare in the past few decades. Sure, some of the current high prices in consumer goods can be attributed to a short supply, but don't pretend like asset prices aren't through the roof. Keep printing money and making it difficult for the young and poor to save and invest - that will help fight inequality!
Buddy Badinski (28422)
Krugman has been spinning his "How not to panic about inflation" nonsense forever to the point where he has tunnel vision on the issue. We don't need inflation even at two percent. It's simple, I want my cash to retain it's full value.
Lifelong New Yorker (NYC)
Inflation is not even on my list of things to be concerned about right now.
rjs7777 (nk)
Fairly well-off people like me will be OK in inflation - our assets are invested in inflation-protected assets like stocks and real estate. However, poor people should be terrified by the prospect of $10,000 rent payments and $1000 grocery bills. It will be a sign of lower income Americans' descent from relative affluence, which they have today, with their homes and cars, into global peasantry. Once the US Dollar loses its hard currency status, our low income people will effectively need to earn Euros or Yuan, according to their skill level, in the global marketplace. Our people will compete directly with Vietnamese and Africans. Dr Krugman knows rapid devaluation is a possibility. He discounts its likelihood, but eventually, at some point, it would happen. He avoids discussing when, presumably because he does not know.
USNA73 (CV 67)
Inflation is a monetary phenomenon. The CPI is an invented measure. Who gets to decide the basket of goods and the "hedonic" adjustments? "Sticky" aside. One's largest purchases are a home, an auto and medical expenses. What is "inflation" doing there? How about property taxes and insurance. Price is what you pay. Value is what you get. Interest rates have nowhere to go but up from zero. Any further decline in the dollar will make our imports surge in price. Not to mention servicing the national debt. We are already too far down the road to disaster when people wake up to an accelerating CPI. My sympathies to the frog in the pot of boiling water who thinks that it is a warm jacuzzi.
Treasure (NY, NY)
Why does no one ever mention that inflation is only bad for people with wealth? Inflation gives people with debt (for example, student debt) the opportunity to pay back their loans with cheaper money. Inflation is a wealth tax. Of course Republicans hate it, but why don't Democrats embrace it?
The Iconoclast (Oregon)
Like so much of our world the traditional paradigms no longer apply well. And one thing being realized is that having a third of the country living in poverty benefits no one. Let alone when two thirds of our people struggle to maintain anything close to what we think of as normalcy. Past time that America's wealthy pay a fair proportion of their good fortune in wages and taxes. Typical Republican on the news last night complaining that he can't find new hires while unemployment is incentivizing not working. $300. a week is $7.50 an hour, this does not motivate anyone to stay home. Remember a third of that goes to withholding. So this Republican thinks his workers should be happy for $5.00 take home pay. A paradigm is a standard, perspective, or set of ideas. A paradigm is a way of looking at something. The word paradigm comes up a lot in the academic, scientific, and business worlds. A new paradigm in business could mean a new way of reaching customers and making money.
Mitch (USA)
Stagflation of the 1970's was the result of two Oil Embargos that limited the supply of crude oil dramatically increasing the price of gasoline and other products made from crude oil, like plastics, without any corresponding increase in wages. Government spending that increases wages may result in higher prices but the increased wages will prevent stagflation and help reverse economic inequality. Those who refuse to learn the lessons of history are doomed to repeat them.
Bender (Chicago, IL)
I'm not sure the folks struggling to pay back student debt or those who took on a huge mortgage to live in the cities where the jobs are wouldn't like to see inflation go up. After some years with higher inflation, debtors pay lenders back with money that is worth less than it was when they originally borrowed it.
Herry (NY)
Inflation is real. Who hasn't noticed an increase in household spending with respect to groceries? I am not talking caviar and champagne, but cereal, milk and eggs. My bills have increased over 20% for a family of 4 while my wages stay the same or maybe increase 3% a year. Its easy for someone like Mr Krugman who also has a CUNY job that pays what most of us make in a year as a second job to say "Dont worry". He is not like any of us, two high wage incomes made by a single person. The reality is basic goods are getting more expensive and many industries have taken a beating during the COVID-19 2020. Not everyone is doing as well as he is, where inflation is something that can be ignored.
Michael Little (Washington DC)
Paul Krugman is one highly-credentialed person who speaks with great authority on this, and I laud both his fact-based leadership and article. When you need brain surgery, you seek an experienced, qualified individual because the consequences of inexperience can be catastrophic. So it is in this case. Most conservative idealogues proclaiming "inflation" over government financial stimulus are merely armchair self-enamored experts who have only run a business or made money in the market and really only understand local and micro financial elements of a P&L, supply and demand, and P/E ratios, and the like. They have no more clue about the global macro-economic system cause and effect than the town weatherman does in trying to explain and advise on the global climate. Experience and facts matter in brain surgery, and here in economics as well.
Scdoc (South Carolina)
In early November 2016 Paul Krugman predicted a global recession after Trump was elected. Very few economists predicted the present market state during a pandemic so experts are not always right.
JohnB (South Grafton)
I view inflation like "good cancer". If inflation is small, it can be left alone as the "cure" will do more harm to the patient (the economy). Think prostate cancer, slow and boring. Moderate inflation has proven cures, some might be painful, but the cure will work. Large inflation still can be cured, but the treatments are painful. Deflatation is the "bad cancer." There are no proven cures. Even if inflation doubles to 5% it is it at the cusp of entering into moderate inflation. "The previous guy" bragged about record low unemployment rate, without the corresponding wage growth that should have occurred. I do not believe wage growth will occur within the next 12 months. With unemployment and the larger underemployment numbers, current workers will have their hours expand to full time, before businesses start to hire. As businesses hire, discouraged workers will enter the workforce, suppressing wage growth.
Reality (WA)
All well and good, but just more smoke to obscure the real conversation that even Prof Krugman always avoids. Why must the US be saddled with Darwinian Capitalism? Why are we compelled to live in thrall to the greatest Ponzi scheme that was ever sold to suckers. Ah yes, forever expanding populations. Forever expanding consumption .Infinite resources. The golden calf . The perpetual motion machine. All of this from people who tell us that Science is infallible.
Joan In California (California)
I'm waiting for my 1400 reasons not to panic!
bde (iowa)
@Joan In California, turns out, for me it was not 1400. While (after the past year with an almost 30% decline in revenue) not sneering at it, what I received was insufficient to cover cost of relatively minor auto repair (the meme with mechanic's response to a quote turns out to be not so funny) . . . & as far back as a year ago was hoping to be able to afford some dental work . . . at the moment trying to pin down what that might cost in 6 months is impossible. So, not panicking, but nearly any 'capital' (say replacing a furnace) investment is out of the picture for the foreseeable future . . . & keeping sufficient funds available for emergencies means parking it in institutions where I derive '0' benefit from the work it's doing in the crony capital economy.
betaneptune (USA)
@Joan In California - $1400 per person is going to cause stagflation or runaway inflation? The economy has lost far, far, far more than that in spending. Even adding the $1200 and $600 payments, I doubt this is cause for concern. Many are having trouble just buying food and paying rent, and buying medicines, of course. And this mean discretionary spending is way down. Not to worry.
Dave Davis (Virginia)
A simple rule is: ignore conservatives/GOP and listen to the experts
FGC (Chile)
So you don't predict but you rather hope there will not be inflation. And what did you predict or hope about a possible market fall after Trump's election? But perhaps you are a praying atheist.
Pat (Long Island)
Fun fact: I was 8 years old in 1974.
Greg (Chicago)
If Paul says “don’t worry about inflation”, you should bet on inflation. This “economist” was wrong with every economic forecast.
Lasse Westh-Nielsen (Denmark)
If stagflation is the result of contract durations and price setting durations and such, will technology not have solved this somewhere between now and the 70s? With decent information flows and dare I say it, "well functioning markets", you might get little spikes of course - but how would that build into something self-perpetuating in the modern world?
Alan MacDonald (Wells, Maine)
Paul, I don’t “Panic About Inflation” — but I am deeply disturbed about economists who are Not panicked about the ‘negative externality cost’ pipeline of making huge ‘faux-profits’ by pumping and dumping ‘negative externality costs’ on “others”, which continues through the pipeline of “accumulation by dispossession”, which endlessly drives up the GINI Coefficient of ‘Wealth Inequality’ toward that magic 1.0 (where one UHNWI person in the world “has it all”), and finally where that ‘externality to Empire’ pipeline finally dumps the stinking flow of criminal greed of economic deceit into the plastic clogged ocean of its final resting place of this Disguised Global Crony Capitalist & Racist Empire.
Thorsten Debs (Summerland)
Economics as a profession seems have morphed into little more than a priesthood selling indulgences to capitalists. Find one supporting your biases and make sure their take is promoted widely. "Economists say . . . . . . "
A.G. (St Louis, MO)
Inflation may not be that much of a problem. There's still a possibility of rising prices, however innocuous that maybe. In the end what matters is how the public, the voters perceive it. Although inflation is a perennial worry for most people around the world, deflation despite being rare is far, far more damaging than inflation has ever been. Even run away, hyper inflation as in Germany during the 1920s, prior to Hitler getting absolute power, didn't have that much damage. It was bad for Zimbabwe in the past few years. It wasn't that bad in Argentina a couple of decades ago. But the worry about inflation is constant. From a practical, political perspective, inflation can't therefore be ignored. But the public needs to be educated the benign, even constructive role like 2-4% inflation. Taxes on the affluent have to be raised, not to 39.6% on over $400K or so. A 50% top rate on over $10 Million would affect may be about the top 0.1% or so incomes. All incomes over $1 millions should be taxed as regular incomes. Other kinds of taxes like slowly rising financial transaction tax as well as Federal gas tax, eventually reaching the average for European countries also ought to be considered In 1940s and '50s 90% marginal rates didn't slow the economy, whereas, tax-cuts for the rich did retard the economy to varying degrees.
A.G. (St Louis, MO)
@A.G.: I'm sorry that I wrote the above comment before carefully reading the article, yesterday. This is a highly informative article. I hope very many more people will read this and understand how Prof Krugman has simplified and summarized the important matter of STAGFLATION, the 1970s' scourge, which may have been an important reason, besides Khomeini's capture of the US Diplomats in Teheran, for the disastrous (to me at least) presidency of Ronald Reagan. I might add, did Paul Volker over-react to inflation? But Ben Bernanke was a non-partisan genius. It was sad Barack Obama fired him, without even giving him a presidential medal of freedom.
A.G. (St Louis, MO)
@A.G. “Thank you for your submission. We'll notify you via email when your comment has been approved.” But that notification hasn't happened with me for several months, now.
arusso (or)
You should call Bret Stephens.
David Lloyd-Jones (Toronto, Canada)
"Crying wolf" was the phrase our parents taught us. But then credibility has never been a Trumpoids' worry, has it?
ecclect-obsvr (New Jersey)
I suspect concentrated economic power-- as in Corporations have more to do with price increases these days. Think about your internet, cable and phone companies. Not much competition there.
JB (Nashville, Tennessee)
"On the right, however, it’s an article of faith that activist government is always bad, even in a crisis." I realize this statement refers specifically to economics, but the right are HUGE fans of activist government when it comes to things like monitoring the uterus of every woman of child-bearing age or overturning the will of voters.
Zdude (Anton Chico, NM)
Situational inflation is what the Republicans possess. In 2020 Republicans readily passed $4 trillion in Covid aid without a peep about inflation. This year? They refuse to pass $2 trillion in Covid aid and incessantly scream, "Inflation and border!"
dj sims (Indiana)
I keep pointing this out but nobody seems interested. Inflation and interest rates go up and down in long 60 year cycles. 10 years ago we were still in the declining phase. 2020 was the predicted bottom year of the cycle. Going forward we are in the increasing phase and the rules from 10 years ago may not apply.
Bill (New York)
"Just about everyone, from private forecasters to the Fed itself, expects an economic boom, with the U.S. economy growing at rates not seen since the 1980s." This prediction by Professor Krugman is not going to age well. It will likely go down as an embarassment on the level of his prediction of economic disaster in the markets after President Trump was elected in 2016.
ecclect-obsvr (New Jersey)
@Bill Given that he almost immediately took that prediction back shows that you don't follow him seriously.
Charles (New York)
@Bill I'm not sure, after years of sequester, that Mr. Krugman could have predicted that Republicans would allow Trump to balloon the deficit to over a trillion dollars a year pumping money into the economy.
NYC_HF (New York City)
I would like to see some work on whether or not we are actually able to properly measure inflation. There has been a rapid increase in the use of delivery services in large cities and this often entails paying an annual fee to companies for 'free delivery' or some other benefit. Amazon Prime or Grubhub / Seamless for example. Are these fees being included when we measure price changes in the CPI or PCE? Similarly, how well do the basket of goods tracked in these measures adjust for substitutions. People are choosing to eat healthier food which generally costs more. I know my weekly food budget has more than doubled in the last ten years. Are we accounting for this? When you look at the data it looks like we don't have any inflation but when people look at their wallets they know there is no more money.
Eric (New York)
Professor Krugman has been writing about the "chicken little" syndrome of republicans falsely sounding the alarm on inflation for over a decade (with a slight pause during trump's time in office) without admitting error. We are already seeing a return to conservative standard operating procedures of conservatives decrying the end of western civilization EVERY TIME a progressive government initiatives bold programs to help working families. The aforementioned cycle [crying inflation when democrats spend on working families and ignoring it when conservatives cut taxes on the wealthy] is as consistent as the annual changing of seasons.
Robert Scull (Cary, NC)
Inflation is harmful to the profits of creditors, but beneficial to debtors because if wages and salaries rise with inflation a fixed debt or mortgage becomes more affordable.
Reginald Smythe (Guilford CT)
Inflation is hard on retirees.
priceofcivilization (Houston)
Also I remember the extremely partisan nature of the inflation panic. Hyperinflation was promoted by breitbart news and Steve bannon. Only republicans repeated it.
William O, Beeman (Minneapolis, MN)
Republicans know that their followers don't have the slightest knowledge of macroeconomics. For that reason they can raise all kinds of irrelevant bogeymen to scare them. Baby boomers (who voted for Trump in large numbers) remember the inflationary years of the Carter administration with 15% mortgages and the like. It doesn't take much to frighten them with hair-on-fire cries of "inflation, inflation!" If only the public could be persuaded to even read a short, knowledgeable column such as this. But Paul Krugman is another Republican bogeyman.
David Martin (Paris)
On the bright side, if there is an issue, it will be ten years from now, and by then people will have forgotten what Paul Krugman said.
Bruce Crabtree (Los Angeles)
You can bet the Republicans will do everything they can to fan fears of inflation in the hopes that it will catch fire and burn Biden, and that the news media will enthusiastically enable them.
KC (Okla)
It's really hard to teach an old dog new tricks. This crop of Republican Lawmakers only know how to work around the parameters of "Trickle Down Economic Theory." They pray this new bottom up approach won't work but deep down they know it will.
Sgt Schulz (Oz)
The money that is washing through the economy finishes in the dead pools of the ultra rich; for every $1 a needy person gets, $10 ends in the pockets of the 0.1%. That is why there is no inflation. The money that is tied up in mansions, non fungible tokens and other such playthings is useless.
Eatoin Shrdlu (Long Island)
Everyone who has been robbed by plague profiteers (unwarranted skyrocketing prices on food, masks, cleaning products, funerals, now fuel) - essentially everyone but the amoral profiteers, is suffering from insane inflation that can and should be halted under existing emergency law. Essentially, anyone who’s used Covid as an excuse for raising prices without evidence that their prices have increased - and they have done nothing but pass along the increase (no, having a business closed to limit the pandemic is not an excuse), should be prosecuted and publicly shamed as much as any war profiteer has ever been - and customs are due immediate refunds with interest. And all of us on fixed incomes who have suffered - and will continue to suffer as business insists on making the post-2019 bottom line higher than the 2019 bottom line, just because, deserve real Cost of Living Awards - paid for by the profiteers who won’t cut their bottom lines. The Trump Tax Reform for the Wealthy, like the W. Bush criminal war in Iraq, came at the worst possible time. And the need for personal protective gear (masks and more) and medical equipment is no justification for raising costs. I used to be able to get a large box of NIOSH-certified N-95 masks for a dime to a dollar a piece, depending on quantity purchased. Now I’m paying up to $5 for an alleged Korean equivalent. Stop the thieves, imprison them, seize their factories and farms!
James Landi (Camden, Maine)
The real inflation is the hot air that is being generated by Republican gasbags in their media echo chambers. The price of goods and services will continue to be just what the market will bear, with the dollars being directed into the pockets of people who truly need the money to live, with most of it spent on necessities and not stock buy-backs .
Daniel (Kansas)
The best thing about "anecdotal evidence" is that if you talk to enough people you will find all the "evidence" you need to support your argument. Just ask flat-earthers, alien abductees, Trump supporters or climate denialists.
Tournachonadar (Illiana)
Like the bygone and much-maligned Confederacy, our government has a paper fiat currency allegedly backed by “the full faith and credit of the United States.” As a federal law enforcement employee who deals with Treasury on massive disbursements of series revenue, I still don’t know what that bromide really means. We bail out millions with checks that are what Philadelphia politicians call “walking-around money” in n effort to stimulate the economy. And promise additional trillions from the hotly humming printing presses to defray the cost of reparations. How can all this pumping paper money into the hands of the millions not cause inflation?
Stan (New York City)
@Tournachonadar The well-maligned Confederacy’s economic problem was that its real economy had too few asserts to support its war effort. The US printed “Greenbacks” during the Civil War but it’s growing industrial economy sustained its war effort
pat (london)
Some parts of the economy may inflate, some parts may deflate, but 70's style stagflation? I doubt it very much. I'm not sure what the policy on links is, but there's an interesting piece in today's Guardian on inflation due to microchip shortages.
Johnson, R. (NE AR)
" Do you remember the great inflation scare of 2010-2011? " No. ...because it was not "great" and certainly was not a "scare" to most people, excluding the Chicken Little republicants of course. Great is the job that Biden, Harris and the, still, partially assembled administration are doing. Great is the relief that hundreds of millions here and around the world are beginning to feel. Scary are people who continue to scream steal & fraud when every bit of verifiable evidence proves probity beyond any logical or reasonable doubt. Scary are States that want to go back to allowing only the chosen few to govern by disallowing the votes of every American citizen except those they believe will vote for them. In ten years someone will ask, do you remember 'the great immigration scare of 2020-2021?' Same answer. /.
Kaylee (MD)
All of this inflation speculation is dangerous. It’s driving people to Bitcoin because of its so-call “limited supply”. Many are going to get burn hard and lose their savings because of the Bitcoin craze.
Roger (Littleton MA)
This was such a well-conceived piece of writing. It's really an important issue.
America The Delusional (Sponsored By the GOP)
Only when it comes to helping people and the broad economy do we have to question “is the stimulus too big?” Never do I hear from the GOP that, “maybe we gave CEOs a bit too much last time, better dial it down”. Can you imagine that being uttered by any republican?
Jeff (New York)
If only the Nobelist knew everything, he might tell us how we are ever going to repay the national debt and all these "investments". I would like to know when the gov't will be running a surplus, for how long, and who will be paying it. Because to my non-Nobel brain, there is no political discussion of ever running a balanced budget, let alone a surplus. People like Krugman enable these splurges by ignoring facts. That this only happens when Democrats inhabit the White House is, of course, a coincidence.
Stan (New York City)
@Jeff When the US government ran a surplus, rather than using it to pay down existing debt, it was used for lowering income taxes
Wise12 (USA)
Wages thus aggregate demand are not rising. How can I pay you more if I don’t make more.......
Richard Brown (Connecticut)
So what is going on with Larry Summers??? I saw a Bloomberg headline that he's saying this is the worst macro economic policy in 40 years, and there are other headlines as well. Is he going off the rails because no one is heeding his advice? The agony of a pundit unheard??? And why the fear of inflation? A bit of inflation is normal -- these near-negative and negative rates are the weird thing. I for one would like to get more than .0000001% interest from my savings accounts!
Norville T. Johnstone (New York)
Typical Krugman article, all is well, nothing to fear, this good for us right up to the end where he slips in the well this could be too much of a good thing as well. This way no matter what happens he can claim he was right.
Herman Frank (Santa Fe)
Government to the RESCUE! Unemployed from a company which is closed down, without company medical insurance, behind on mortgage payments, kids on-line schooling, utilities bills coming in, the internet bill being one of the most important ones to cover. Recognize the situation? Support President Joe for his focus on GOVERNMENT support. Have his back for the HR1 voting act, support him for his infrastructure bill, support him on education reform. Do your part, get vaccinated, wear a mask, maintain social distance. President Joe is an American Hero, YOU be a hero!
James K. Lowden (Camden, Maine)
Interest on the debt will be paid by a larger, richer population. The debt will never be"paid off". It was here when we got here, and will be here when we’re gone.
Gary Cohen (Great Neck NY)
Maybe Biden can consult Paul Ryan who seemed to be wrong on everything but abandoning the House after dealing with Trump.
Voter Frog (Oklahoma City, OK)
How else to pay off the national debt, but with cheap, inflated dollars? The rich will be protected because they own real property and the means of production. Those of us with fixed pensions & cash, so what if we're the ones to take it on the chin.
S Venkatesh (Chennai, India)
This article is as educative to a lay Reader as it is deeply insightful from its Nobel-winning Author. Sadly, such immensely helpful articles are drowned in US Media’s, including NYT, flood of articles by failed Economists, dubbed ‘expert’ for effect, espousing doom inflation scenarios out of US Media’s fixation with ‘balanced’ presentation of views. Mahatma Gandhi had said Truth stands alone, even if unpopular with none to stand for it. US Media’s dedication to always surround Truth with ample doses of blatant Lies only serves to cloud minds of Readers with Lies. Unfortunately, Lies are more easily understood, more strongly appeal to universal human baser instincts & are more readily accepted. In time, people grow to prefer Lies over Truth, Evil over Good & Demagoguery over Democracy. This has been the success of US Media in last 5yrs of Trump era.
Rufus (Planet Earth)
Millions living on the streets mentally ill, drug addicted and homeless. Massive lines at food pantry's and soup kitchens. College students not able to afford to eat. Student loan debt thru the roof. Massive commercial vacant real estate(looking at you NYC). Millions facing eviction come May. -What is this word 'inflation' of which you speak?
kirk (montana)
The luddite Republicans have not been correct about any economic predictions since before 1929. It is time to not pay any attention to them. Let's rebuild our infrastructure, pass fair and equitable revenue enhancements, encourage mission based government basic research, stop wasting money on a military that has not won a war in 75 years and get on with being a world leader again. Go Joe, go. Pedal to the metal and leave the losing parasites in the dust.
Father Eric F (Cleveland, Ohio)
"Don't panic." –– Good advice for Arthur Dent and it's good advice for anyone concerned about talk of inflation.
Samuel Braun (Tokyo)
It's precisely articles like this that prompt people to panic.
RCP (Texas)
Well, it’s already here. The price of everything is rapidly increasing, who are you and the other economists fooling? Typical Democrat/liberal/socialist hubris think they control and manage it all. They cannot and won’t.
Marc Lindemann (Ny)
A great time to raise the minimum wage.
charles (new york)
@Marc Lindemann Raising the minimum wage is a good way to raise unemployment and to make people more dependent on government for their existence. That is the way the Left can accrue more votes and remain in power.
Bender (Chicago, IL)
@Marc Lindemann Great point. Inflation is not so bad if wages keep pace. In fact, the debt-ridden bottom half of Americans might finally catch a break.
Mok (Buffalo NY)
@charles Minimum wage steadily increased through the 50's into the 80's until Reaganomics put a stop to that. Unemployment in fact did not rise in those decades due to minimum wage keeping pace with inflation. Unless you have actual concrete evidence that this is the case, you're just parroting a conservative script.
Christy (WA)
I'm not panicking and neither are most economists. The only ones panicking are Republicans, and only because they don't want Biden's agenda to be more popular with voters than the GOP's platform of Trump worship and corporate welfare while neglecting the poor and the middle class.
JKile (White Haven, PA)
@Christy They are not really panicking. They are just generating fear. It’s the life blood of the party and how they keep their followers interested. True or not.
@Christy I am a lifelong Democrat and I am panicking. I remember past times of inflation so I'm worried. The infrastructure bill really has me worried for many reasons. It is too big for starters and it won't be good for the environment-all of that construction. Let's concentrate on fixing what we have-bridges, airports, etc. first, before we build anything new. For the first time, ever, I feel that my party feels is high on something and I don't like it.
betaneptune (USA)
@JKile - Have you been on any Democrat mailing lists? Lots of fear there, too. Well, at least there was during election season! But still not as bad as what I hear Republicans say on the news, election season or not.
Jtc (NY)
I’m not panicking. But what does a 2 to 3% inflation rate do to income inequality? Real wages decline by the inflation rate, so is it a back door way to lower the minimum wage? Does that stimulate hiring?
Robert Kent-Bryant (Michigan)
@Jtc Two things. You can expect that wages will rise with inflation. In fact, rising wages may be the main cause of the inflation. Second, a little bit of inflation is good for debtors, allowing them to pay back debts with less valuable dollars. Generally speaking, this is good for lower income people, who tend to carry more debt as a percentage of their income.
Jtc (NY)
@Robert Kent-Bryant Thanks for the response. Why would wages necessarily rise with so many people out of work?
Koala (A Tree)
The state of Economics sometimes makes me want to weep. On the one hand, you have economists still pushing the line that stagflation in the 70s was caused by the "expectations" fairy. The truth is that the inflation was caused by the Saudis raising the price of oil. You could have all the unemployment you want, that wasn't going to lower the price of oil. The inflation stopped when Carter deregulated natural gas, and all of the sudden there was an alternate source of energy. On the other hand, people's concern about inflation is out of all proportion to its real threat. It's like it's the only problem an economy could possibly have in people's minds. Why aren't people ever concerned about the output gap? That gaping chasm that separates what the US could have been producing all these years and what it actually has been producing. That trillions of dollars left on the table in lost productivity. And no one cares. For that matter, why aren't people ever concerned about deflation, which is much worse? No. All you ever hear about is paranoia about inflation. It is perhaps one of the greatest untold victories of conservative economists to make people's only economic concern to be about inflation.
brixton77 (Los Angeles)
The Federal Reserve has been destroying consumer buying power and propping up stocks for a decade (almost 8 trillion now). Krugman never really addresses the inequality caused by all this stock pumping. In capitalist societies, the market is supposed to benefit society. We've created a system in which Americans are working to support the market (150 billion a month in QE now). This is insane. And incidentally, there is already runaway inflation in the thing Americans need most -- housing.
not my ancestors (Canada)
@brixton77 this --so much this. The rich have figured out that if they can contain interest rates, hard assets inflate exponentially. They contain interest rates through sleight of hand. Low interest rates contribute to low housing cost inflation, because they measure the cost of carrying housing rather than the cost of purchasing housing. This means that raising interest rates will raise inflation rates--lowering interest rates lowers inflation rates. The very point of raising rates to contain inflation no longer holds true. I'm not sure when they changed how they measured inflation but the formulas have been tweaked very often over the years, always to reduce the measure of inflation which is the only thing employers use to raise wages for working people. The rich have rigged the system.
Human (Maryland)
@brixton77 How is a bubble in stocks or housing related to sticky inflation? Both seem to be frothy markets that are limited to a subset of people--people with investments and people who are needing to sell or buy housing. But I don't see most people in those markets. There is a dearth of houses on the market which jacks up prices, but it's a narrow market problem, not a broad problem. Stocks are dominated by institutional investors--this is not the 1920s. The broad market of people are cautious, having been more than once burned, and more than twice shy. Some of the stimulus money will go to pay off debt. From my position closer the ground than the sky, the expectation is still that prices will stay level, and that bargains and cheaper alternatives are still available. That also means that wages are limited and that one must pick between not so great options. People could use a little bit of inflation--not runaway, but some--to enable them to pay down debt. If anything is a danger in this economy, it is not inflation, but that people are buried up to their eyeballs in debt. In another column, I hope that Mr. Krugman will address the expansion of credit cards from the late 1980s to the early 2000s. We are paying interest for groceries. So one more question for Mr. Krugman--does the Fed take that into account when separating food and energy from inflation? That when we are buying food, we are taking on debt?
Charles (New York)
@Human The price of energy is tied to the national and international politics of fossil fuels. What other item in our budget would we tolerate increasing (or, decreasing) by 50% every few months? Our best bet against inflation is to harness a constant supply of renewable energy.
Bruce Rozenblit (Kansas City, MO)
It was only a few years ago that serious economists were talking about deflation. We were being warned of negative interest rates. We were being warned of declining commodity prices. We were being warned of contracting economies caused by declining birth rates and aging populations. We were being warned of falling into an inescapable deflationary spiral. Remember? Now, we just may be on the cusp of some real growth unlike we have not seen in decades. This kind of growth is just what we need to get the economy rolling and provide jobs for millions of unemployed and underemployed workers. There is a big difference from interest rates going from 5% to 9% then going from 0% to 4%. There was a time when banks paid all savers 5%. In other words, the FED has lots of room to combat inflation with interest rates starting from at zero. The risk, emphasis on risk, of mild inflation compared to the benefits of strong growth, is very slight. It's worth taking. I for one would love to make 3% on my savings again. Oh the days when all banks paid 5%.
Kathy Lollock (Santa Rosa, CA)
@Bruce Rozenblit Good point...bringing up our present and past interest rates.
Thomas Zaslavsky (Binghamton, N.Y.)
@Bruce Rozenblit I only remember 3%. Where should I have been banking? It's a dim memory, though; now I'm grateful not to pay a monthly fee.
grennan (green bay)
@Thomas Zaslavsky Back then there were things called "savings and loans"; you may be too young to remember the late 80s bailout. To pay savers high interest rates, the S & Ls made ridiculously risky loans.
JD (Elko)
Now that I have locked in a 2.4% mortgage and my vehicle is at 1.9% only 24 more payments! I’m actually hoping for a little inflation in the August to October timeframe. Bump my social security up a bit and then let the market cool and it will be a good year. My wife and I are vaccinated have enough to survive and can travel if we choose to. I lived with a 17% mortgage in the 80s and I will be glad to stay out of that cycle as will most of my contemporaries. I can return to the work world if I choose to but I’m not eager to get back to the grind so I will just enjoy the rest of my life and deal with it as it comes, I think that’s all any of us can do and we will all have bumps but it beats the alternative
Chris Budde (Roscoe, IL)
Ok, I won’t panic about inflation. And I’m not supposed to panic about deficit spending. And I see how this can be wise in the short term, but we haven’t had a Federal budget surplus since 2001. How will I look my children and grandchildren in the eye when these real, snow=plowing obligations overtake our ability to pay? Please could you comment on this.
Kalyan Basu (Plano)
One point in the economic discussion is all theories are eternal whereas the world is ever changing. The economic dynamics we observed in the Great Depression, the Great Recession and during Carter administrations are valid reasons for macroeconomists even today. The technology, globalization, the productive capacity of the world and the consumptions pattern, all have changed and evolving in rapid speed. The world is fully capable to quickly respond to supply and demand discrepancies, the production environment is highly competitive and price sensitive, there are excess global production capacity, manpower, and technology and creativity are ever changing the supply line efficiency, production cost. Excess money supply will be gainfully and efficiently employed for production and not only play as as betting tools for supply/demand game in a static market.
Tom Hayden (Minneapolis Mn)
I’d love to do an add-on to our house but building supplies are very costly now, the laborers are scarce, and builders are temporarily overwhelmed. So I’ll hold off for now.
spughie (Boston)
Question, my understanding is that the Cost Of Living Allowances (COLAS) that the government uses to determine the increase is payments for Social Security and other things are based on the inflation rate that does not include food or energy costs. But aren’t those things, plus housing costs, what the majority of people spend their money on? So if we do have a return of inflation, and the cost of food and energy go up, won’t people on fixed incomes be worse off?
Dave (Dayton, OH)
@spughie Actually, no. That's not how it works. Read the article. It's right there, near the top, above the point where most people lose interest and head here to vent. Food, energy, and (to some extent) housing, fluctuate. That's a big word that means "to go up and down a lot." The nature of the fluctuation has nothing to do with the actual value of money, so a separate set of numbers get generated that pull those things out for the benefit of actual economists (that is, not you). Did you, or anyone else, claim massive deflation last year when gas went down to a buck a gallon? Of course not.
spughie (Boston)
@Dave Thanks for responding and trying to explain it. This seems a good example of perception versus reality. My perception is prices go up and stay high, and I'm losing ground to inflation over the years versus the reality of sticky prices. Although while gasoline prices went down during the pandemic, grocery prices went up (how much due to the pandemic I'm not sure, has to be some). So did we had deflation in one good but inflation in another. Economics not is only 'the dismal science' it's maddeningly complex as well. I have much to learn and understand.
David (CT)
A little more inflation would help many burdened by GOP caused medical and education debt - in fact it was that previous period of inflation that set up many Boomers for the debt free life they currently live. Inflation eats away debt as well as savings. On a macroeconomic scale (rather than personal) if you don't have savings - as they didn't then - but do have debt - say mortgage debt - then some inflation is rather nice. Naturally, talk of inflation throws the the wealthy into 'kinniptions'.
Duane McPherson (Groveland, NY)
@David, Well said. The most persistent inflation-phobics are those people who are obsessed about hard currency, i.e., gold bugs. Those people do not understand that locking our currency to gold or silver (or you-name-it) would prevent the economy from growing. Because there is a finite amount of gold and silver on the planet. In fact there are already more ounces of gold owned on paper than there is actual gold bullion available (shades of "The Producers"?). If our economy is to grow, money must be added in proportion to that growth. And there is growth in both the size of the population and in the overall activity of the economy. If more people are working, it should be understandable that more money must be available to pay them. After all, money is fundamentally a symbol representing stored labor. And if wages rise over time, more money is required to match that rise. If prices rise gradually but wages keep pace, we maintain the same effective income. And with that comes the benefit, as you noted, that debts owed in 'older money' effectively shrink at the rate of inflation because they can be paid with 'newer money'. That applies to our national debt as well as to personal debt, such as mortgages.
Philip Brown (Australia)
Given that the most perplexing economic issue of our time, is low inflation and low wage increases; ought not the Republicans welcome some inflation? Australia's central bank would welcome a 3% inflation rate right now; to stave off the threat of deflation.
Rob (Canada)
This coming inflation is an exemplary conservative economic or intellectual analysis with its attendant use of threatening metaphors and similes. This unhesitating insertion of hyperbolic misrepresentations underlies most conservative/republican/right wing analyses, policies, and statements in service of the 1 % and the 0.1% of wealth holders.
Kidcanuck (Canada)
Every time I read an article on inflation written by professional economists I never cease to be amazed at how readily they accept the estimates coming out of the Department of Labor. The changes in the CPI calculation methodology (from a fixed weight index to a standard of living equivalent) has opened a torrent of abuse: substitution of cheaper vs. more expensive goods (i.e., chicken vs. beef protein), downward statistical price adjustments due to higher quality (never mind that you can't buy the old good anymore), "new" products de-linked from previous equivalent good price chain (marketing gimmicks more than truly new), lower weights than actual in the calculation for major things like housing, insurance and health, and education. And then, of course, there are the lower volumes in foodstuffs not reflected in prices. The statisticians claim these are being taken into account, but interested observers know that's not true in the main. To claim that inflation is running at approximately 2% is an insult to the intelligence of people. For most folks the true rate is more like 5-10%, depending on the goods and services you actually consume and where you live. Perhaps one day, we'll see economists exposing this low inflation scam. The current narrative is only benefiting corporations (keeping wages low) and governments (lower debt payments).
Kenneth (ny)
@Kidcanuck "Don't trust the experts, here's my non-data proving the opposite," is not the slam dunk argument you believe it to be. I haven't seen this except in ice-cream containers (which, naturally, people simply do the cost/unit instead of cartons to adjust).
Kidcanuck (Canada)
@Kenneth I have no problem with "experts" in general. However, economics is not physics. Economists have idealized, mathematically elegant models which greatly differ from economic reality which is more driven by psychology than mean variance "rational" models. That's one reason why their predictions are so poor. If you knew how these numbers are put together (you clearly don't), you would have reservations too. Changing the definition of inflation (which is what they did starting with the Boskin report in the mid 90s) may be statistically valid but the results do not represent the price experience of most folks, like they used to.
Kev (SunDiegoe)
In other words, even Mr Krugman admits inflation is coming. We are seeing it happen already, before the spending bill was signed, due to outsized demand and the economy unable to keep up. In this case the government is responsible for both sides of inflation. That is creating artificial demand through stimulus payments and and artificial shorting of supply through lockdowns and an economy that can’t keep up with the demand, thus inflation. Inflation will eat away at your wealth, whether Mr. Krugman likes it or not, and will disproportionally affect the poor.
Expectations are hardly rational, at least most of the time. Hype in the media drives it mostly, especially the financial media. So while the market can't be second guessed, it can certainly be driven by hype. So more than a tax increase what might be more needed is counter-hype. So the media might start by using the U6 as the measure of unemployment and the sticky price index that the author mentions. The infrastructure agenda needs to be supported by a well funded PR effort - this is clearly lacking and the naysayers already have the initiative.
rich (hutchinson isl. fl)
The millions of Americans who stood in line to get food last year, for the first time in their lives, will not quickly forget the lesson, and a higher near future rate of saving will take some of the rise out of the inflation rate.
pH7 (North Carolina)
Ol' Paul doesn't say so, but it looks like he's falling back on Irving Fisher's Quantity Theory of Money: MV = PT, or money supply times velocity of money equals average price per transaction times number of transactions. Each side is GDP viewed from different perspectives, so the equation is really an identity. It always has to be true. Measuring the components is problematic, but M, the velocity of money, can be calculated as GDP/(money supply). Google it, and you'll find that V has been declining for years. With velocity declining, increasing M won't increase GDP much, which is exactly what we saw during the Obama years. To get GDP to increase, the increasing M has to overwhelm the decreasing V, and that may be the idea behind "going big." How average price and number of transactions react, though, is uncertain. We'll just have to place our wealth bets and wait and see. Of course, Paul may be using the Phillips Curve. But ignoring the temporary nature of the current unemployment would lead to disaster, so that likely is not his underlying principle. Ah, economics, the dismal "science." A better description would be the art of muddling through.
Steve Slats (Jersey Shore)
The simplest definition of inflation is when too many dollars are chasing too few goods. The simple fix is either produce more goods (not so easy or quick to do) or remove some of the dollars. The easy and quick way to remove the dollars is with taxes, especially on those with the most dollars. Who would oppose that? We know the answer.
Grabski (Morris County, NJ)
There is an important difference between then and now 2007/08 (the recession ended in Q1 2009) was a liquidation and working through a speculative excess 2020/01 is a government mandate (in some states) to stop the economy in its tracks. In the first, the expansion of money was digested through the workout Now the expansion of money is akin to kindling to fuel inflation if ever the big states look to Thriving America and finally throw in the towel on disastrous lockdowns And we have an energy shock akin to the 1970s by the Administration starting to shut down fossil fuels in favor of wind (the power source of the 1500s) and sub (the power source before fire was discovered) The flooding of the labor markets will return blue collar wages to the pre-2017 stagnation. But with so much money distributed to people who haven’t been affected from WFH, the logic of more money chasing fewer goods takes over.
Derek Martin (Pittsburgh)
@Grabski "2020/01 is a government mandate (in some states) to stop the economy in its tracks." That's a false premise. The virus had already severely affected the face-to-face pieces of the economy before there was any government mandates to shelter in place. You are blaming the reaction rather than the root cause.
Ray Katz (Philadelphia, PA)
I remain amused about the “threat” of rejecting fossil fuels in favor of energy sources that don’t cause climate catastrophe. It seems that, for many people, the survival of our species and the wellbeing of our planet is worth precisely nothing.
Grabski (Morris County, NJ)
@Derek Martin A perusal of Thriving FL and Shrinking NYS shows clearly that the response matters We aren’t talking about “two weeks to slow the spread” any longer. It’s been over a year Policy matters The ranking of states by unemployment rate and lockdowns are pretty clear on that. Even your reading of the data makes it clear the causes of 2007/08 and 2020/21 don’t share much in common
Michigander (USA)
Dr. Krugman, my business has experienced substantial increase in labor and raw material from products sourced overseas especially Asia. 50% increase in some polymer olefin based materials (oil caused?) and 10% increase in labor year over year (typical). Shipping has also doubled. Do you think that is short termed or something bigger? I don't see the same from my North American suppliers. If we could get those steel tariffs removed I could on-shore much of my injection molded products as was the plan in 2019 but scuttled by he who we will not say his name out loud. :-)
Chasethebear (Brazil)
Dr. Krugman. please reply to this. Say you live on a sovereign island economy, with prices about the same as they are in the US today, let us say in dollars. The government prints a great many dollars and hands them all out: $100,000 to each citizen. Aren't you going to see a very steep inflation? It just has to be. The amount of currency going around has increased tremendously, whereas the total production of society has not increased. The only way you would not see inflation would be if every person kept their $100,000 cash; no one spent anything. It doesn't matter at all whether wages are "sticky" or whether people expect to see inflation or not. I realize this is an extreme, unrealistic example. But sir, you know inflation has brought down many governments. The exact causes of each inflation are complex, but some of them surely were "printing money" or its equivalent.
John from NYC (New York, NY)
@Chasethebear. There is a big difference between an island (with a mythical self reliance economy) with a sovereign economy and the US economy and the effects of giving everyone an amount of money that is large enough to destabilize an economy. But let’s take one real life example, Argentina. At the turn of the 20th Century, Argentina was the fifth largest economy in the world. By the 1970s, their economy was in shambles. The Argentinian government actually ran about of paper to print their own currency (I think it was still the Argentinian Peso) and inflation was around 500%. The same country made the same mistake at the turn of the 21st Century, it pegged the “new Austral” to the USD, and things were fine for a while. Then an economic shock took the new currency from 1:1 to the USD to 10:1, eventually inflation rose the double digits. Their mistake was two fold, first to “think” that the size of their economy was the same as that of the US, huge mistake, the other was not to adopt the USD as a national currency. The US economy can absorb the $1.9 Trillion, money will go into the economy without much of a shock (much of a shock means earth shattering inflation). Reason why, there are still around 10 million people out of work, those who have lost their jobs since Feb-Mar 2020 and have not returned to the labor force will cushion the effects of the package. Let’s talk about inflation when there is full employment and consumers continue to spend money equally.
duvalle (europe)
The argument that everything will be fine is a bit flimsy; my gut feeling and look at history. The minimun wage structure in europe and elsewhere is in an overhaul and will increase. Other problem is productivity and unemployment or better say with very low unemplyment where will the workers come from? So the case is more complicated as stated.
John from NYC (New York, NY)
@duvalle That’s is why immigrants are an important part of our economy. Democrats should avoid making the immigration debate about a social issue and put it in economic terms. There is a huge difference between an economy that relies purely on its population (closed end), than those with a controlled influx of ready labor (immigrants) The first will have to wait 18 years for a new born to be labor ready (plus the cost of education and living expenses), as opposed to allow an 18-19 year old from somewhere outside the US. It is a READY labor force, the training is much less expensive than 12+ years of education without return on investment during those years. This should be taught in every single high school in the country, more so than creationism vs. evolution.
Ray Katz (Philadelphia, PA)
Yes. A Nobel prize winning economist doesn’t understand that the economy is complex. ;-)
donald.richards (Terre Haute)
The institutional prerequisites for sustained inflation aren't in place as they were in the 1970s. Labor unions that can institutionalize wage inflation are a thing of the past. In the global economy monopoly firms don't have the same luxury to boost prices without paying consequences. And I doubt that the government is targeting the unemployment rate below the "natural level", whatever that is. So, right, ignore the hue and cry coming from the right. Reassure them that if inflationary pressure ever becomes a real threat, we can always raise their taxes to cool things off. That should shut them up.
Josue Azul (Texas)
The argument about inflation is just another a ploy by the rich to keep the middle class fighting for their (the rich) interests. Think about it. If you’re rich and have a lot of capital inflation erodes the overall value of that capital. If you’re middle class and don’t have hardly any capital, but instead have loans like a mortgage, inflation will erode the value of what you owe, meaning in real terms you owe less. As long as inflation doesn’t turn into hyper inflation a couple to a few percent is fine.
Bob (California)
@Josue Azul But what about the poor who don’t have mortgages, but instead have to pay rent, buy food, and heat their apartments? It seems to me inflation would be particularly devastating for them; particularly since they are the one group that has very little bargaining power to demand higher wages.
A Canadian View (New Brunswick)
@Bob These are the people that the government should help by taxing wealth properly. A strong safety net is the answer.
Helen Macmullin (Antigonish. Nova Scotia, Canada)
@Bob and thinking of the poor in the USA can you even imagine the stress due to the cost of having a baby or dealing with a health issue?
BFP (New York)
Had the economy recovered from the Great Recession we would have probably seen significant inflation. The US and world economies never did recover and there lies the problem. What many economists fail to tell you is that government deficit spending actually increases GDP. ALL government spending is captured in GDP calculations. About 1/2 is captured in the Government Spending component of GDP. The remaining 1/2 (transfer payments like Social Security and SNAP) are picked up in the Consumer Spending component. If you have a $20 trillion economy and the government borrows $1 trillion for stimulus, you'll see an increase in GDP of 5% over what it otherwise would have been. The actual increase would be somewhat greater due to the "multiplier effect" but that's a different discussion. From 2008 through 2019 the Federal deficit, expressed as a %age of GDP was greater than YOY GDP growth every year except 2015. Think about that statement. Without the deficit there would have been no GDP growth save for 2015 when growth would have been 0.65%. The COVID happened. Today deficits are orders of magnitude above where they were pre 2020. Of course people deserve some assistance. Where I part with Mr. Krugman is when he proposes that there will be little consequence to these actions. That they are desirable. When your economy is based on debt (and CB monetization of that debt) and not productivity you have a fundamental problem. In time we'll see there is no free lunch.
RW (Arlington Heights, IL)
Don’t kid yourself. We’ve had inflation for a while now. I run a small manufacturing business. Go and buy fasteners, metal or plastic stock, chemical reagents, lenses..... pretty much anything. Prices have increased by 30-70% in the last few years. This started pre- COVID. Labor costs, fringe and insurance have also gone though the roof. Just because a pound of apples and a pint of milk cost about the same as two years ago doesn’t mean that we don’t already have inflation. It’s slowly killing industries and making US-made goods uncompetitive or at best unprofitable to produce. The service industry is different perhaps but “stuff” is getting very expensive these days.
Helen Macmullin (Antigonish. Nova Scotia, Canada)
@RW this is the reality. Truth coming from the ground – not as economists choose to see it.
Thomas (Forest Hills)
Wide angle, a vantage economists can bring to bear relevant and historical data on to argue about, there is still the crystal ball unpredictability factor. Maybe the important question is not how much we spend, but how we spend it. The existing paradigm for infrastructure investment, fixing roads, bridges, tunnels, etc, to ameliorate problems of congestion, without carefully reimagining transportation and community needs of the future, could well result in a terrible wasteful excess, a lost opportunity, remembered as hyper inflationary. Right now, in my own back yard, a combination federal, state, and local money, to the tune of hundreds of millions of dollars, is being spent on a vast and complicated road and bridge maze to facilitate more efficient automobile movement, largely to facilitate overextended suburban development and expansion for the great (upper) middle class. This is not transportation reimagined. This is not the energy grid reimagined. This is not work or community reimagined. The question is, does some combination of government, academic, and private enterprise have the imagination and wisdom to meet the moment, or will we waste another great opportunity?
Thomas (Forest Hills)
And a further point. Could there not be a national conversation and debate about the master plan of all this spending, featuring not just the economists, who tend to abstraction, but the engineers and urban planners and architects of lived environments and futurists, arguing about a plan for the decades. A figure of 3 trillion doesn’t scare me so much as the absence of discussion and analysis from the deep thinkers who have experience dealing with the problems of the current built world and its many and manifest ills.
Jason (Mcdonald)
My parents bought their house in Oklahoma the 1950s for about $30k. It's now worth $300k. My wife's parents bought their house in California in the 1950s for about $40k. It was sold in 2000 for about $800,000. Housing prices , however, are not included accurately in the CPI. I went to Harvard in the 1980s. Tuition was $18,000. My daughter is going to college next year - hopefully also to a prestigious school. Cost? $75,000. Nope, no inflation here. Nothing to look at here. What you measure determines what you "see" as inflation.
Kelly (Gainesville, FL)
@Jason, there are literally hundreds of factors that go into the pricing of houses and tuition. the roughly 2% a year inflation we see simply isn't hyperinflation, no matter how you want to spin it. Houses are skyrocketing in prices in general (especially in California) because there simply isn't enough of them. Have you missed the "housing crisis" that was a critical component of many of the democratic debates this past year? Have you read no policy about it?
Sometimes it rains (NY)
@Jason Agreed. The current economy model should be ditched. The new day has come.
Michigander (USA)
@Kelly well stated! :-)
John (Hartford)
While I totally agree with Krugman's analysis it needs to be remembered that the great inflation he refers to in the 1970's was principally caused by the tenfold rise in the price of oil during the decade. Oil being then much more important than it is even now. There were some sticky elements left over from the 60's because of the Vietnam war and other factors but oil was the major cause. However, that is not going to occur again since we now have a world glut of oil and attitudes to the commodity have changed.
College Parent (New York)
A concern on inflation is the labor component. Given the current state of the economy -- partially closed for certain business -- unemployment is not that high at about 6%. As the economy opens, employers eager to get back to business will hire and be willing to spend what it takes to attract employees. As employment and wages increase, demand would spike, permitting businesses to set higher prices, partially to cover their higher labor costs. It would seem likely that the full re-opening of the economy will result in a near-term wage and price spike. The question is whether that is a short term phenomenon or it becomes an inflationary cycle. The possible good news on that front is that with interest rates near zero, the Fed has means available to address such a cycle; hopefully diluting the punch, not completely taking the bowl away.
Karl (Charleston SC)
It would be wonderful if this "inflation blip" happens in the third quarter 2021. My SS check might increase more than the increase in medical insurance!
Skotina (NYC)
Inflation acts like an extra tax. So why not per-empt and institute a tax. Enough of this "only $400K plus earners bracket". All tax brackets must see a tax hike (proportionately) to dig ourselves out of the hole the $5T (combined) stimulus and the recession have jointly imposed upon the economy. We all must pay our fair share. I for one (gross income of $66K last year) stand in the ready.
Helen Macmullin (Antigonish. Nova Scotia, Canada)
@Skotina It's the 1 percenters who need to pay their fair share now. With our gross family income around 50 thousand a year (Canadian) we could really use the 8-9 thousand that goes to taxes.
Jack (Rockville, Md)
My take is that Krugman is right on. But his nuanced approach to inflation may not win the political debate and misinformation machine at Fox News. Essentially, I think Krugman has confidence in our ability to control inflation and avoid stagflation. But I agree with him that runaway inflation is not in the cards and we should with nuanced conclusions.
Marvant Duhon (Bloomington Indiana)
Almost all the present Republican leadership in Congress and the present cream of Murdoch punditry in Fox News, the Wall Street Journal, and the British tabloids were calling out "Inflation!" in 2010-2011. If any of them have read Krugman's column, they must be muttering about how unfair it is to remember history. For History, like Mathematics and all forms of Facts, has a well known liberal bias.
Night Sparrow (Not where I want)
I love this. Having a chart that tracks what is going on with threatening inflation separated out from the usual everyday fluctuations will definitely help me get and keep a grip when ripsaw political winds soar like they did a decade ago. I wonder if pushing for the sorely needed rise for minimum wage will fall victim to republican outrage claiming it's a sign of coming stagflation? The argument that when it's intentional, not market driven, intended to catch up labor underpaid ever since real stagflation 40 years ago is too subtle for republicans to grasp.
Samuel (Sisal mx, Berkeley CA)
The economic story of the NEXT decade or 2. Start writing about it. It's about impossible to have inflation in the face of lowering energy costs. As we shift the energy pie chart from High Cost Fossils to Low Cost Renewables energy costs per (BTU?) will continue to decrease. Every year the price of Solar, Wind, and Storage decrease. Fossil fuels were always inflationary. Gas was 20 cents a gallon, now it's 4 Dollars a gallon, inflationary. Until this point we decreased the energy intensity of a dollar of GDP by becoming more efficient or chosing a less energy intensive output. Always fighting against the ever increasing price of High Priced Fossils. Now the equation is changing with energy costs ever decreasing. Write about this often. Thanks
Faux Fixes (New Hampshire)
According to the 2018 report by Loss-Of Buying-Power-Report, actual price increases vs actual Cost Of Living Adjustments by Social Security lagged real inflation by -34% since year 2000. Every country that prints its way into temporary wealth and prosperity reverts to under reporting inflation. Its a natural response when the con-game is full on. What's the actual value of the Argentinian Peso, Venezuelan Bolivar, Zimbabwe dollar vs the black market exchange rate? Every fiat currency in human history has failed because every sovereign country who controls its currency can't help but to debase its value to promote social, political, or military control. It all goes hand in hand with the lying about actual inflation. Every country that has attempted to conjure wealth from thin air has had to lie about actual inflation, period.
Jane (Queensbury, NY)
@Faux Fixes I'm with you on this. I like and respect Paul Krugman. I do not watch or believe Fox News. I "identify" as an average, college-educated, white, female, American liberal who has worked in the not-for-profit sector most of her life and never enjoyed corporate or institutional largesse. You can't tell me there isn't a disconnect between economic theory and grass-roots reality, and it makes me wonder about the personal economic fortunes (including job security, retirement plans, investments and other cushions) of those in academic and political circles who watch and parse the data in order to arrive at their analysis and predictions. Sorry Paul, but this includes you. Data can be manipulated, and I have absolutely no doubt that our government is self-serving in the way it measures and declares inflation. Economist may be right to discern between different types of inflation and different types of long- and short-term effects. Kudos to them for their rigorous work; it's important in every field of endeavor. Kudos to Paul Krugman for bringing History to the discussion. But for economists and policy-makers to ignore what people and businesses down here in the weeds are experiencing in terms of rising costs is appalling! Where's the analysis that take us into account? This is a black mark on the entire field of econmics, and makes the theories, policies, and data they're based on look like lies -- as Faux Fixes says, like a con-game.
toom (somewhere)
Here Prof. Krugman is correct. If you print your own money, you can control inflation. But the value of the dollar may decline. So the cost of imports may rise. But the most important ingredient in this economy is energy and the US can produce enough energy to take care of itself.
pH7 (North Carolina)
@toom Interesting. So you don't see a declining value of the dollar and inflation as being the same thing viewed from two different perspectives. I think your logic needs some work.
Stan (New York City)
@pH7 Declining dollar value leads to more exports. The sword cuts both ways
pH7 (North Carolina)
@Stan That is very often just a temporary effect that is ultimately offset by inflation. No, declining value of the currency and inflation are the same thing.
Elizabeth (Houston)
Mr. Krugman tells us not to worry while saying in the next sentence, "And it's certainly possible that the American Rescue Plan will turn out, in retrospect, to have been to much of a good thing." Not very reassuring.
Harvey (Chennai)
@Elizabeth It would indeed be awful if scores of unworthy children were lifted out of poverty only to see the price of iPhones go up. The horror!
Night Sparrow (Not where I want)
It might if you're a republican expecting ridiculous boasts like coivid is just like a bad cold, but to those of us who can take the good with the bad it's a responsible presentation of the facts. Take note, trump got Covid, almost died and Still got the shot the moment it was available in January. Is he encouraging his loyals to get the shot? Crickets. So much for republican reassurance.
Guido Malsh (Cincinnati)
In other words, when prices keep rising, the sky's not necessarily falling. And economics may not be the 'dismal science' after all. As always, Dr. K, thanks for your thoughtful shepherding.
trillo (Massachusetts)
The two types of inflation are analogous to weather (short term) and climate (long term). And we all know how well Republicans have been able to distinguish between weather and climate.
LDurk (Rochester, NY)
Core inflation occurs when needed products and services are not readily available, either being with held from the market or in short supply. Depending upon the stupidity of republicans, the only core shortage we might be confronted with is cheap, nutritional food. Why? Because the inexpensive seasonal immigrant labor from Mexico that picks / processes that food may decide that the personal risks of coming to the US to work are not worth the pay. If that happens, then we'll have meaningful inflation, or we'll have government price supports to food. So far as businesses pricing inflation into the product prices, well, that only goes so far. The market determines the actual price of a product or service. That's it, unless the government allows the company to unilaterally set the market prices, as in medical services and pharmaceuticals, for example. Inflation is not our problem, nor is it likely to be our biggest problem in the near future. Our biggest problem is a political party that obsesses with its looming loss of relevance and will adopt scorched earth tactics to cling to their offices. Our second biggest problem is a political faction within the other party that insists on defining cultural norms to conform to their own ideological dictates. Which means basically that our biggest problem is competent governance. Within that Gordian Knot is the failure of elected officials who view their political tenure as a given and their agendas as divinely ordained.
Elizabeth (Houston)
@LDurk Uh, no. MANY goods are in short supply right now due to pandemic related interruptions in manufacturing and stalls in shipping.
LDurk (Rochester, NY)
@Elizabeth Thanks for your observation. The short supply items are due to the pandemic and Trump's failed tariff war. The underlying economy was and remains strong. Fix the pandemic which is what Keynes would advocate and the economy fixes itself. If we had functioning governance, we'd be so focused on rebuilding infrastructure for the 21st century, we'd have prosperity that would make the 1990s pale by comparison.
Martin Byster (Fishkill, NY)
Seems to me all the expected inflation over the first two decades of the 21st century which didn't show up in the CPI could be explained as having showed up as an overvalued stock market in the US and overvalued assets hoarded away in foreign accounts. Wages failed to grow with the measured growth of the economy and a slowly increasing cost of imported consumer products diminished opportunities to make big money and some of those holding big bags of money unable to give it away. Yup, we'll see another blip in CPI with another opportunity to rake off profit into the stock market until federal taxes are raised, collected, and spent from the bottom up on healthcare, infrastructure, and education to bring wage earners back to creating the wealth of our nation.
Sunshine (CT)
Economists have much better data now than in the 70s and 80s which should lead to better economic decision. In a similar way, Wall Street has much better data about companies (from tracking satellite images of oil tankers to how many cars are visiting GameStop stores each day). The $3.9 trillion bill should help the economy, but how is it going to be measured as a success or a failure? Is it by the number of people it brings out of unemployment or the number of infrastructure projects it completes or both. A better solutions could be to focus on both unemployment and infrastructure problems seperately.
Rowna Sutin (Bloomfield, CT)
Although my husband and I share our NYTimes subscription, and his letter on this subject has been published, (while writing from a standpoint of knowledge and experience) he does not possess the necessary skills to analyze economic conditions from the Everyman standpoint. In our world the flatline of the economy is where inflation is immaterial and the moneyed world just keeps rolling along. Right above it is our optimism range, bubbling away, being fed by the fantasy land of the stock market and analysts who help feed this frenzy. Lying underneath is the fear of inflation. From time to time it rears its ugly head, only to be whack-a-moled down by disbelief and government intervention. We can write and fret about it, but according to my crystal ball, inflation won’t drag our economy down anytime soon.
R. Anderson (South Carolina)
On the one hand, Paul, you may be right. On the other hand, you may be wrong. Our nation is printing and spending money like 330 million drunken sailors. And that's not sustainable without serious consequences. Other countries may not want to loan us money anymore. Flooding the country with all those dollars does cause prices to go up (cars, appliances, pharmaceuticals, food, energy, housing). Of course we have to as always blame the politicians who are always trying to get votes the easy way - buy them. But of course, we might also have deflation. But then again that's why Harry Truman disliked economists and supposedly said, Send Me A One-Handed Economist.
Lumpy (East Hampton)
@R. Anderson Airline executive: “well, air travel down by 80%, I think now would be a good time to launch a 15% price hike” Auto executive: “jeez—we have vast fields of unsold cars. Let’s try raising prices 8% to 10%. That will get customers back into the showroom.” Employee: “hmmm...millions of unemployed people desperate for any type of work. I think I’ll march into the boss’s office and demand a raise! Or else!” Yes...inflationary pressures everywhere you look.
Steve (Raznick)
@R. Anderson Well hello Mr. McConnell.
Faux Fixes (New Hampshire)
The inflation "con" is about selling the moment and not the momentum. 2% inflation compounded over 20 years reduces the purchasing power of the dollar by half (-50%). And measuring inflation by a yard stick that the government openly stated was created, to lower the deficit, and reduce the automatic Cost Of Living Adjustments on Social Security, not to measure actual price increase. Aka, fake measurements that biases price declines vs price increases. What we have is rapidly rising prices in everything we NEED and flat to slower price rising in everything we WANT. It's not the kind of currency that matters but how much is printed that determines its value. Checking out the M1 money supply since 2009 and inflation isn't just rising fast it will soon be accelerate.
pH7 (North Carolina)
@Faux Fixes Actually, 2% inflation will halve the purchasing power of the dollar in 34.3 years. After 20 years of 2% inflation, purchasing power is about 2/3 of its original value.
jack (north carolina)
He never addressed the alternative that current inflation would be based on expectation of rising prices. What is different this time is that both parties have realized that taxation is just a fiction and need have nothing to do with spending.
Michael (Toledo, Ohio, USA)
I accept that the fiscal stimulus response to the Great Recession of 2007-08 was undersized, and that fears of runaway inflation were overblown. I think it is reasonable and necessary to "go big" now in supporting families and buisnesses, as well as state and local governments, that are suffering because of the pandemic. Surely, infrastructure spending -- the next big thing, apparently -- is a vital long-term investment. But I worry that paying for all this by borrowing and (in effect) printing money will work fine only until, suddenly one day, it doesn't. If borrowing and printing are risk-free, why should we tax ourselves at all, ever? At what point will doubts about this strategy lead to loss of confidence, soaring interest rates, and (I'll say it) runaway inflation? Will we wish we had taxed ourselves more, only after it's too late for that to help? I would like very much to hear the thoughts of Dr. Krugman, whom I greatly respect, on this question.
tushar katarki (acton, ma)
the author fails to acknowledge other factors, particularly the realignment of global supply chains. I lived through the great recession as well as this past year and I can compare . The shortage in goods and services is definitely showing. you can see that in cost of building materials and cost of durable goods everything from your lawn tractor to the bike or kayak. I am not talking grocery store bills .. which is also crazy but sure that's not durable goods. surely I don't wish for inflation. but, the fed better watch out. also, we do need investment in infrastructure. so bring it on.
Kirk C. (Delmar, NY)
The supply of fiat money (now a worldwide phenomena) will increase as fast as governments need it, regardless of prices. We have benefited from cheap Asian labor for so long that we (including Krugman) will be shocked and mystified by a slowdown to our profligate living standard if prices rise, and supply chains narrow. Stand by.
Auntie Mame (NYC)
@Kirk C. To the degree that many service jobs depend on tourism - or people travelling from home for work... there was mention of the lack of bodies in the subways the other day, even when schools are up and running, if offices stay empty and some will, and because of inflation people cannot afford to travel (will prices come down?? they are up... discussion about not filling business class seats.. the stimulus to Wall Street will mean nothing for Main Street.. rather like the ACA and most legislation passed post Reagan. Americans had a chance to vote for Warren... but Hillary and misogeny got in the way... lots of fear of a woman couldn't take on Trump. Biden has made a big immigration mess three months in office.. and yes Republicans will win both the mid terms and the next presidential election if they can come up with one decent candidate - fingers crossed. I have no idea what these infrastructure projects might entail. Learning that the BART system is riddled with crime and awful to use-- the comments provide more news than many articles... Trains won't work for travel in the US because we don't have useable public transit in most places. Get there, you need a car. If we have google car.. OK. Cost problem partially solved. We need leveling of salaries.. not union longevity salaries-- more years on the job does not nec.make you better at a job.. A lot of rote thinking needs to change. Saying things again and again does not make them true.
Brian Edelman (Zionsville, Indiana)
Dear Dr. Krugman, A piece on inflation and no data on the level of and rate of increase in the money supply? The thinning of the currency by the expansion of the money supply is the point you must intellectually dismiss with analysis or you appear unwilling to take on an argument that fuels much of the concern about inflation. Sincerely — Brian Edelman
Roo (Toronto)
What about housing inflation? What has caused the price of housing in large cities to inflate over the past two decades to a point where lower income citizens can no longer afford to live there? I've come to believe that much of this inflation is caused by investment money redirected into housing to meet the needs of growing cities. The problem is this big investment money has caused inflation. The citizens, on their average incomes, can't cause housing inflation but investment money looking for higher returns can . I've always thought that some amount of inflation (5-10%), though painful, would also stop and reduce housing inflation.
mgavagan (New Jersey)
WHY isn't the Treasury issuing 30, 50 and 100 year bonds, to take advantage of historically low interest rates? Oh, it's probably due to bankers and their army of lobbyists, protecting their fees...
Michael (North Carolina)
100% agree with this column, and the many astute reader comments. However, there is one area in which inflation has already occurred, and continues apace - financial asset prices. I wonder what happens in the "real economy" when (and in my experience it is when, and not if) those asset prices return to historic valuation levels. House prices are also inflated, at least relative to incomes. I respect the Fed, and trust that it will be able to navigate that minefield when the time comes, but I do not envy the task. But inflation at the consumer level is of little concern to me. The people have no money, and as long as the concentration of the nation's wealth remains as-is, which the Republican can be counted on to make happen, no company will have the pricing power to make inflation a real threat. But those financial asset prices? That's another story.
john (arlington, va)
Good column. The consumer price index has prices not just of products but many services, such as hotel rates, airline fares, entertainment costs, daycare, colleges, etc from industries that are partly closed owing to the pandemic. As they reopen it is unlikely their prices will rise. As the 10 million or so unemployed return to work, wages may have to rise of course and that is good news and a good form of inflation. The stimulus payments of $1,400 a person will stimulate consumer purchases and prices may rise, but may not but that is good news even if inflation rises. Good news for reopening industries, more jobs, and ending much poverty. Housing prices are rising everywhere but rents are dropping so housing costs may not be rising as much as housing price increases indicate. Some of the housing price rise happened because older owners decided to stay in their homes owing to the pandemic and not move. This may abate as the pandemic vanishes.
Walking Man (Glenmont NY)
I'd be interested to see if inflation can be intentional. Some sectors collude to prevent higher wages, for example. My area had a situation where hospitals shared salary data so one hospital didn't get all the nurses by offering higher pay. Workers could not shop their services around. How about this scenario: the wealthy and rich corporations raise prices to make borrowing money to help poor people look like a terrible idea because they know taxes will eventually rise to pay for it. Getting the idea of stimulus out of peoples' heads because "Well, look what you have gone and done. You don't ever want to do that again". I don't recall any inflationary fears when lots of money was spent on 'bailing out' rich people who got lots of play money out of the deal. So "Raise your prices. The cost will come out of the customer; we will pay a small price in lower sales. It will be temporary and we get to keep OUR stimulus". Genius if you think of it.
Johann Smythe (WA)
"And it’s certainly possible that the American Rescue Plan will turn out, in retrospect, to have been too much of a good thing." I agree widespread, severe inflation is unlikely. I fail to see how throwing a lifeline (the Covid Rescue Checks) to drowning people can cause a long term problem. And you're absolutely correct. "Anecdotal evidence, otherwise known as “talking to people”........" is what I refer to as 'tavern talk'. It's usually as valuable as any wind that blows from the neighboring bar stool.
Auntie Mame (NYC)
@Johann Smythe In a trickle up economy, stock dividends tend to go up, whose pocket does the stimulus check eventually end up in. Maybe we need deflation. If rents actually came down maybe then housing would be affordable.
Johann Smythe (WA)
@Auntie Mame ....."Maybe we need deflation." I hesitate to criticize your post, and I understand the seductive allure of the concept of deflation. But generally deflation has far worse effects than inflation. With inflation, wages are frantically chasing prices, but people have jobs and people are spending, trying to buy things before the price goes up. With deflation, prices are very affordable.......but no one has a job because no one is buying anything while they wait for the price to drop further.
Stu Sutin (Bloomfield, CT)
Krugman may be right. Then again, pricing restraints on most consumer goods are a function of supply of goods to meet demand. Trump disrupted supply chains in many product areas by raising tariffs, and failing to stimulate domestic production. Just speak with home builders about their nightmares in procuring key materials. Prices of gasoline at the pump are soaring. Home mortgage interest rates are rising. Bond prices are falling. Stock prices are artificially high. And Bitcoin? It is premature to write an obituary for inflation, or to assume that our economic future is rosy. Krugman may be a captive of his own wishful thinking, while failing to reflect upon the validity of his assumptions.
HenryK (DC)
I may be missing something, but in 2011 there wasn’t a 1.9 trillion dollar stimulus, to come on stream just at a time when pandemic disruptions were about to end, and private demand was expected to recover simultaneously. Further, in 2011 demand was structurally depressed in the wake of the GFC, this time temporary supply disruptions are the cause behind economic misery.
Aurace Rengifo (Miami Beach, FL)
In my industry, the price of real estate sales continues to rise due to the lack of inventory in the lower price range. The same goes for rentals. The market adjusts. I think that the trillion-dollar infrastructure Biden plan will further stimulate the economy even before starting the investment. I think we will look back at the Biden years in the WH and see how America won the COVID war at the same time as seeing a growing economy. So we will know it was doable. Which would not have happened just by cutting taxes for the most wealthy.
bsb (ny)
"So what’s going to happen in the months ahead? We’ll probably see a number of transitory price increases" Paul. You should be a weather person. They always say "chance of" or "partly", rather than commit. Covering all your bases with "probably". If you are going to take a stand, take it!
Jim (Michigan)
For the first time in our history, the older (let's say over 50) generation does not care about making the country better for the next generation. The sheer greed of these people (I am 60) is astounding. Of course everything will cost more (just look at gas), the debt will be overwhelming, there will be fewer jobs in our country, people will lose their careers if they say one word that could possibly offend someone. All the younger people had to suffer just because people my age were more vulnerable. Terrible.
Sierra Morgan (Dallas)
@Jim Those of us who are at the tail end of the the Boommer generation did not reap the benefits that the early and middle Boomer Boomers did. The buffet was almost gone by the time we got our plates. Michigan has been in quasi-depression since the 1980s. I see the evidence every day. People our age, I'm 57, were not demanding to be vaccinated first, it was the oldest Boomers. It was the older ones who said too bad Jr. I'm working until I am 95 so no good job for you. And look at the elected representatives who have refused to step down so our cohort can serve. And these same people refuse to pass legislation that will make life easier and better for everyone because they believe it might take something from their pockets.
Jim (Michigan)
@Sierra Morgan Hard to disagree with you, especially your point about the elected representatives...they are a perfect example of older greed. No one over 70 should be in congress, the senate or the President.
Dman (Portland, OR)
Former Treasury Secretary Larry Summers, one of the few Democratic economists who thought the American Rescue Plan would be inflationary, may be proven right yet again.
Marvant Duhon (Bloomington Indiana)
@Dman If you mean right as in right and left, it happens for Summers occasionally that his position is on the right but wrong.
Max Deitenbeck (Shreveport)
@Dman Again? When did the first time happen?
Bluestar (Arizona)
@Dman. I love it! LOL
One More Time (Georgia, USA)
What bothers me is the gov't defines inflation, it makes up its own formula and reports the results and expects Americans to believe the facts are true. But then we go out to the market and asked when an one orange cost 85 cents compared to 50 cents and the gov't says inflation remains below 2.0 so life is good, tell me do you believe the gov't or the fact the change you get back from buying an orange gets smaller and smaller. The orange was an example but think of the numerous items you buy, not just food too.
Eatoin Shrdlu (Long Island)
Reinstating an improved “market basket” would clearly demonstrate profiteering by farmers, processors, marketers, the fuel industry and retail food chains. where are you getting oranges for less than $1 each?
One More Time (Georgia, USA)
@Eatoin Shrdlu Atlanta.....I'm sure it cost more to live on L.I. but less than Manhattan...
Thick Brick (Glen Cove, NY)
Where I work, the HR department is swamped with paperwork because the retirements are piling up fast. Many people put off retiring during COVID, but now as they get vaccinated, they are all cashing out. I expect a huge wage competition for anyone who is willing and able to work. The fed and the government can try to fight it but demographics is destiny.
Denis (Boston)
Good advice which can be reduced to play the game in front of you not the one you wish you could. Also, we need some adjusted metrics for these times. Household formation and baby-making are two important measures we should pay attention to. Experts say we’re going to be 300,000 babies short of expectations and household formation may suffer from Covid our there could be a surge. What effects do these things have on the greater economy?
alan (MA)
Inflation happens....mostly due to Republicans. Just look at the price of a house before Reagan and after Reagan. A house is the largest and most important single purchase most people will ever make. Pre-Reagan you could buy a nice house in a nice neighborhood, in a nice Town on a single income. Port-Reagan that is almost impossible.
Denis (Boston)
@alan Agree but don’t forget that Reagan just by accident was in position as the large baby boom was forming households and looking for real estate.
Sirharryflashman (Ottawa)
The inflation we are seeing today is asset inflation. The price of stocks, houses, land, etc is rising at a tremendous rate. Money is chasing stocks and driving the S&P and Dow to historic highs. The price of homes is rising to levels that our young cannot afford. Sure, the 'basket of goods' may appear not to have risen substantially in price, but all around us prices are skyrocketing. The Reserve Bank of New Zealand (RBNZ) announced it will consider the impact on housing prices when it debates monetary policy decisions. They are the first central bank to acknowledge that monetary policy decisions could influence asset prices at times adversely - lifting valuations far beyond fundamentals. Boom-bust credit and asset cycles have been two of the unforeseen side effects of inflation targeting. In the US, boom-bust asset cycles, linked directly to easy money policy and the promise to maintain it for an extended period, triggered the last two recessions. You don't need to be a Nobel Prize economist to see this.
Charles Tiege (Rochester, MN)
@Sirharryflashman Good point. While prices for items in our inflation shopping cart are going up slowly, prices for 'investibles' - anything that is bought with an eye toward possible value appreciation - are skyrocketing. I suspect that people who have wealth beyond their needs to support their desired lifestyles are buying most investibles. This is consistent with extreme inequality, with great wealth concentrated in a relatively small segment of society.
Jerry's Dad (New Haven, CT)
Republican agenda for 2021, and beyond: 1. Bring out the inflation boogeyman once again. 2. Introduce voter suppression legislation all over the place. 3. Repeat steps 1 and 2 forever.
Sparky (Virginia)
@Jerry's Dad slight adjustment needed: 3. Introduce legislation to lower taxes. 4. Repeat steps 1 - 3 forever.
Kelly P (New York)
@Jerry's Dad You are forgetting using fear of immigrant Bogeyman. Playing Race card to drive wedge between Races too.
Jerry's Dad (New Haven, CT)
@Sparky Good one!
Andy (VA)
Dr. Krugman's columns always a similar caveat: "And it’s certainly possible that the American Rescue Plan will turn out, in retrospect, to have been too much of a good thing. " Let's just admit that piling on debt is one big ponzi scheme and some generation in the future will be stuck with the bill. No one knows when but it is undeniable it will happen.
@Andy Wrong wrong wrong Andy. Thats what they have wanted you to think for past 100 years. Modern Monetary Theory MMT is all the rage as a more level headed explanation of how the economy and government spending truly work. Read Stephanie Kelton and Warren Mosler Watch you tube videos on it over and over. Kelton even now gets invitations from Senators and World leaders for advice
Thomas Renner (New York City)
Yes the hay day of inflation. I remember getting those 16% CDs along with a free toaster at the local saving bank, now I am lucky to get .5%. There really needs to be something in-between as some of us used to live off the interest from our life savings, now that sum wouldn't buy a wagon of groceries. And yes I know the stock market however that's not for all of us.
Amanda (New York)
2010-2011 saw a stimulus of only 1/3 of what has already happened in 2020-2021 and no minimum wage increase. But Paul Krugman and others have already called for more than doubling the minimum wage and indexing it to future inflation, even though indexing of wage contracts was a factor in the 1970's inflationary spiral to the point that such indexation was actually outlawed. How can Paul possibly compare the two situations, especially given his own support for a new inflationary spiral?
Kirk C. (Albany, NY)
The reason not to panic about (price level) inflation is that prices are what they are. Inflation in terms of a parabolic rise in the money supply (see St Louis Fed FRED data) has already happened, and we will get the results. Don’t panic.
Izzy (Danbury CT)
From Ground Zero as a packaging importer and distributor: Increases in the price of polyethylene resin in June, July, August, September, and December 2020.. and 2 more in 2021. Increase in the price of polypropylene resin of over $500/MT in the last 4 months. Ocean freight from Asia, well over double from a year ago. Natural kraft bags purchased overseas up 20%. Just to name a few. This does not feel like benign inflation to us. I hope that you are right Paul, because we cannot increase selling prices as fast as our costs are rising.
A. Away (London)
“Why must I listen to these Wall Street Bond Salesmen?,” asked President Clinton of Robert Rubin. “Because if you don’t, you’ll be out of office and blamed for wrecking the economy,” he replied. If you don’t have a gold plated pension plan from the government or university, you classically move from equity investments to fixed income investments as you approach retirement, the very thing those Wall Street Salesmen sell. Inflation eats away at that income and retirees dependent upon it react very negatively to rising prices and declining bond values. But liberals are perfectly happy to let retirees exist on Social Security alone so they can just die and leave the electoral rolls to WOKE children and gullible immigrants.
Kevin (Oslo)
There's an awful lot of pent-up demand because of this pandemic. When the vaccinations are sufficiently distributed, all those millions of people who have been sitting on big decisions, purchases and travel plans will spring into action. We have already seen pockets of inflation for specific goods in this pandemic. There's every reason to plan for excess aggregate demand and cost push / supply-side factors to arise in the coming months (in other words: inflation).
sdavidc9 (Cornwall Bridge, Connecticut)
Expecting inflation produces it, and expecting stable prices produces them. This thought, seemingly true to a great extent, produces vertigo in people who believe in an external economic reality independent of what we believe about it. This external reality would be what God knows it to be. But what God knows it to be is a function of what He knows we believe it to be; unlike the weather, which is what it is no matter what we know about it, economic reality is what it is substantially because of what we think about it. People used to want the earth to rest on something -- a turtle, a giant, Atlas, whatever. Now we know that it does not, and we have learned to deal with that problem. Inflation exists because of human beliefs and expectations about the economy. So instead of basing our beliefs on a reality independent of them (a reality that in fact does not exist), we should tailor our beliefs to produce what we want to happen. If we do not want inflation, we should not set prices to anticipate it. As I said, this thought produces vertigo.
Emil (Pittsburgh, PA)
Inflation, if it happens, is a matter of mass hysteria driven by fear and greed, just as in the stock market. Prices have more to do with the general anxiety level of people rather than the supply of goods or natural resources. Actual macro-economic disruptions are caused by long term after-shocks of bad policy decisions. People adjust to the circumstances in the market place, but those individual decisions are not necessary to the benefit of society or government. Good or bad policy decision make for good or bad results, but only years later. Americans have been deluded into believing in the all-mighty dollar, which is largely a digit on a massive computer game. The outcomes are increasingly dependent on millions of individual inputs, most of which are selfish and irrational. There is an element of chance and luck built into the system. There is actually a new school of economics that purports to steer economists in a new direction: Resource Economics. It's an attempt to measure, to the extent possible, the effects of consumption and production on Mother Earth. Future economists will have to start measuring intrinsic elements, the availability of water, oxygen, oil and other buried resources, and the ability of people to extract and use them in a benign way in order to feed, house and procreate.
jthors (Minneapolis)
Do economists still talk about wage push and demand pull inflation like they did when I got an economics degree 35 years ago? (At a "fresh water school.") And to what extent is inflation a monetary phenomenon of the classic too much money chasing too few goods variety?
R.T. Emge (Paris)
The financial crisis stimulus and today's package are only comparable in that they're both a form of stimulus. Today's dwarfs the former. The other difference is that there was extreme wealth destruction during the financial crisis and the resulting lag in spending took years to correct, thus inflationary pressures were next to nil. Today most people have more money in their pockets than ever and when the economy opens up there will be a concentrated burst of spending that will in all likeliness lead to higher rates of inflation than Paul Krugman suggests.
Bond Trader (NYC)
The US is accumulating huge amounts of debt. Although we may agree with the reasons we're accumulating that debt (COVID and infrastructure), massive amounts of additional dollars are being printed to facilitate these problems. There are two ways to retire that debt and they are increased taxes and "cheaper" dollars. Inflation reduces the purchasing power of dollars and the perfect example is an auto. In 1957, you could buy a new Chevy for $2,000. Today, that's $20,000. Cheaper (less valuable) dollars make it easier for governments to pay off debt. Inflation, therefore, is a certainty and the only questions are how fast will it happen and how extensive will it be. That's how governments have always paid down debt so economists can call it whatever they want (CPI, PCE) but inflation is coming and it always hits the working man hardest.
Francis (Paris)
@Bond Trader Funny, I thought inflation would hit the bond trader hardest ;) Wages have also increased since 1957, not sure it’s harder to buy a new car now. If they follow price increase, inflation does not hit the working man but the one that relies on savings.
roger (white plains)
I don't understand how people can talk about inflation when we have the worst income imbalance in a very long time. Where is the demand, when only the rich can afford to spend? The rescue plan is just catching up, adding a bit for everyone else. Filling a hole in demand, so to speak. But what's imbedded in the economy, and will be hard to correct, is basic income inequality increases.
Will Hogan (Washington)
The main driver of inflation is, as Paul correctly pointed out, increasing labor costs. Many of us are seeing labor shortages and higher demand for skilled workers, in areas that do not employ restaurant or travel industry workers. One area that would help keep labor costs steady is to train workers in basic job skills. That way we can get everybody benefitting from the economic boom of 2021. We need to train workers to be able to get up, dress up, show up, and never give up. Especially after everything was disrupted for so long by Covid.
Wordsworth from Wadsworth (Mesa, Arizona)
Some smart people, such as Robert Prechter, have predicted inflationary problems. However, the economy has been stifled for over a year, people have been out of work, and a lot of people have personal debt, including rent and mortgages to service. In addition, the Fed, the treasury, and others in government have a better hand on inflation than they did 50 years ago. I'd rather go big like Biden, than half-hearted like they did after 2008. There is more risk in doing less.
Jason (Seattle)
What about the inflation in the cost of the things that matter most (other than food)- healthcare , housing, and education? Maybe inflation has been here for a while due to the loose money policies of the last 2 decades and it’s just not captured in the bogus CPI number.
Teresa (Australia)
@Jason It may be possible to control or even reduce the cost of healthcare by having, like in other countries, a government-generated schedule of fees for medicals, hospital, and surgical services. It is not compulsory for healthcare services to charge the scheduled fee but it gives patients a starting point when considering which doctor, surgeon, or hospital to use and to ask them why they are asking for double or more than the scheduled fee and how they do justify it. Also to shop around for a better deal.
Alice (Florida)
My concern is that many of the comments address the possibility of inflation as an inevitable outcome of discretionary spending of the federal assistance program. I'm not seeing much recognition of the financial issues that the pandemic has caused. For many recipients, the government check simply delays eviction or reduces the pain of "food insufficiency." The extension of unemployment benefits is a noble gesture with drawbacks: some states have systems that cannot handle the volume of people needing assistance; the amount paid in unemployment benefits does not match previous incomes. The jobs created are not equal to the jobs lost so people remain dependent on unemployment. Landlords who haven't been paid rent but have mortgages they must pay. There are banks holding mortgages that haven't been paid leading to the possibility of foreclosures, bankruptcies, homelessness. There are the small businesses that closed permanently and the associated human and financial costs while large corporations have taken advantage of the pandemic to "trim" staffing, renegotiate contracts with suppliers, and benefit from the Trump tax cuts. In summary, we need a jobs program. We need people to be working and earning. to be spending on more than basic necessities and paying taxes. There is still too much need and pain to worry about the possibility of inflation.
Oculus (Bay Area)
Prof. Krugman, I’d appreciate your views on the monetarist equation MV=PQ, where the amount of money in circulation times the velocity of money (the number of times it turns over in a year) equals the price of an average good/service times the number of good/services transacted in a year. It would seem to me that the velocity of money probably dropped in the last year. And the base of money seems to be rapidly expanding. What happens if velocity returns to normal as we come out of the pandemic and the base of money is much larger? Isn’t that a recipe for a rise in average prices, otherwise known as inflation? A simple model would be appreciated! Or, is the premise of the monetarist equation flawed, and if so how?
Vasu (Krishnamurthy)
Oculus, this equation is always true by definition (velocity is defined as PQ/M). And this equation is not “monetarist”. It is a basic equation in macroeconomics of any stripe. The real question is what happens to demand and supply as the stimulus takes effect. If demand grows (the intended effect) but supply lags, we’ll have inflation. This will be short lived if the lagging supply is due to temporary adjustment factors, as will likely be the case with oil or shipping containers. Another question, as noted by Prof. Krugman, is whether inflationary prices will be set with expectations of inflation, becoming a self-fulfilling prophecy. This would be harder and more painful to tackle. The Fed would have to very aggressively raise rates to break this cycle as Fed Chairman Volcker did in the early 1980s. If the Fed does not take bold steps in this scenario then we would have stagflation. Given the lesson from the 1970s and early 80s, I don’t see why the Fed won’t take bold action.
Martin (Budapest)
Inflation at 3% is not a nightmare for a healthy economy with upward pressure on wages. The dollar is artificially strong and could stand some devaluation. This in inself would help make inflation rise at a more manageable rate.
grennan (green bay)
People crying "but, inflation!" should consider how four decades of GOP tax, fiscal and social policy has distorted the U.S. economy. 1) Moves billed as freeing markets from government control, such as cutting regulations, have actually become invisible government support of many markets. 2) Our strange market-based health payment "system" has caused healthcare cost inflation far in excess of other parts of the economy. 3) To make up for tax cuts, we've stinted infrastructure and other normal functions of government. 4) We've favored extractive energy to an extent that it's distorted our foreign policy, as well as domestic economy. 5) Any question about no. 4? Four words: unfunded $3 trillion war. 6) The former guy's tax cuts combined with pressure to keep interest rates low was stimulus when we didn't need it. Much of this amounts to one of the late Uwe Reinhart's most trenchant observations: indirect taxes always cost more than direct ones.
Aurora (Vermont)
My view of the economy is that the one type of spending that is really low right now is recreational spending. This would include air travel for vacations, hotels, going out for drinks and dinner, etc. The news I read is that online retail is doing very well. People are spending money. The housing supply is low, but I wonder if people have now adapted to this hunker down mentality and if so how will that impact major investments. On a smaller scale, I'm a barfly but I'm not eager to get back into bars. I'm eager to have friends over, so we can cook together and drink wine together. My lifestyle has been changed by this pandemic. The boom may come at a more measured pace. I'm concerned that the working class won't benefit from this boom, again. All this Keynesian spending is good, but I was just in Walmart yesterday and I saw a lot of long faces on the people that work there. Every single one of them probably got the $1,400 stimulus payment. But what they really needed was a $3 an hour raise, not just Christmas in March. It seems to me that raising the minimum wage is the one thing we can do to really make our economy constant and strong. Sure it may cause a bump and inflation for a while but that will settle down.
umbler (McCall, Idaho)
There is another risk to large deficit spending that needs to be taken into account. The federal debt is manageable now as interest rates are relatively low. If (or is it when?) interest rates return to historic levels, the interest that must be paid on the now much larger federal debt will be an increasing portion of federal spending, very possibly requiring more borrowing to cover interest cost plus the usual government expenses. A disasterous downward spiral would ensue. There is a limit to how large a federal debt can be managed. How close are we to reaching that limit? No one knows, but the risk is there and it isn't just the rate of inflation.
GRW (Melbourne, Australia)
As this column mentions, the Fed has a target rate for inflation of 2 percent. It is below that. Yet talk is about the possibility of inflation becoming too high. Curious. Pre-pandemic unemployment in the US was very low - yet so was wage growth. I fail to see how there can be a sustained significant increase in prices, unless there is a sustained period of increasing wages. Union membership is not what it was in the 1970's. The effort to lift the minimum wage has failed at this point - and would unlikely lead to wage rises across the board anyway. Similarly where's the price shock equivalent to OPEC quadrupling the price of oil in the early 1970's going to come from? Central Banks are revising their estimates of the level of employment that leads to an inflation of wages up. Frankly I think countries need to really test this limit. Get more people who can work and want to work into work. There's plenty of work to do - installing renewable energy equipment and fixing other infrastructure, for instance. Let's see if we can hit our target rates of inflation first, before we worry about a blow-out of the rate. Yes? With interest rates so low, the Fed has plenty of ammunition to deal with high inflation if it happens. There's more likely things for people to worry about - like the next flood, drought, forest fire, hurricane. How prepared for those are we?
Joshua Schwartz (Ramat-Gan, Israel)
"Smart observers will look past the headlines to measures of underlying inflation — not just the Fed’s standard “core” measure but things like the Atlanta Fed’s sticky price index as well. Anecdotal evidence, otherwise known as “talking to people,” will also be important: Are businesses actually starting to set prices and wages based on the expectation of high future inflation?" And how will this impact on the stock market, or how will the stock market impact on this?
MEH (Ashland, Oregon)
High inflation is a possibility as is rapid inflation. But neither is a probability. But it pays to be prudent. The things the Dems can/should do is tax the rich and skew the economy from trickle down to bubble up. How? 1) increases taxes on the rich. Roll back the cuts to the 1%; tax profits as income; bump up corporate taxes to the high 20%'s 2) increase inheritance tax 3) cut back the military budget since we can already destroy all life on earth fourteen times over 4) fund the Green New Deal asap to promote energy self-sufficiency, create jobs, and reduce the inevitable costs of global warming like coastal flooding, western firestorms, pollution, etc. 5) Start job building, road building, bridge building, aka, rebuild the infrastructure and reduce unemployment. That will increase income tax revenue and build a larger base of benefits for more people. The Dems can do this, and maybe a few GOPers will join in, just for the good of the country.
Brian (Oakland, CA)
Thank you for this, Mr. Krugman. I worked in finance a decade ago (luckily, I'm back in my specialty, biology.) Did research, in one case on 1970s inflation. Had nothing to do with money supply, everything to do with wages, wage agreements, wage expectations. Extremely unpopular conclusion. I didn't care at the time. Now I've thought about it. It seems the left doesn't want to blame wages, because that sounds like you're blaming wages. The right doesn't want to talk about anything but gov't spending inducing money supply. If you think about it, the 2 great economic shifts in the past 35 years - the lack of inflation, and wage stagnation - could be related. Economists hate to say this, preferring to point to China's supply and Chinese savings. Maybe. But when wage data is so closely related to inflation shifts, is it necessary to claim other causes? Even the areas where inflation exists, like hot city housing and private universities, are where the small percent whose incomes have risen a lot live and send their children. It's about demand, not supply, oh my. We'll know when inflation will happen. We'll see strikes, or major wage demands by people working in middle America. We need reasonable inflation to maintain growth, so these may be necessary.
Old Ben (Chester Cty PA)
I was in early subscriber to the New York Times online for free. When they were finally forced to charge money, there was only one reason I stopped my longstanding practice of not paying for newspapers. That reason was Paul Krugman. This column is an excellent example of why. Not only did he present complex economic issues clearly, but he recognizes how practical politics influences government economic policy, very often in negative ways. I wish he had mentioned one more thing in this column. If inflation rates do become severe as a result of this larger government stimulus, remember that the Fed is lending the money at almost 0% interest. Kind of like borrowing from your parents. Here's the thing: if the government takes a 30-year loan, and the inflation rate goes to say 8%, the latter part of that loan will be paid off in dollars which effectively cost the government much less because of inflation. In fact, in such an inflationary period such as 5% a year, the government will actually profit by paying off the debt in inflation-devalued dollars. That idea was the basis of the free silver movement in the late 19th century. Also, if both parts of the infrastructure package now being talked about pass, part of those loans will be repaid by younger workers who benefited from that free kindergarten and child care, and free community college, and are better prepared to contribute in the workplace.
TA Morrison (Corning CA)
America has had and will continue to have a housing shortage. This makes housing expensive and limits disposable income. DINKS - Double Income No Kids may have high disposable income, but most don't, limiting consumption and countering inflation.
RMS (Florida)
I understand the risk of doing too little in this awful crisis. But I have a question. Can we run a “hot” economy, large budget deficits, without runaway inflation at some point? For how long? Do we ever have to pay down the debt? Ever? If the answer is no then just send everyone a check for $100,000 & we'll call it day. And if this is true maybe someone can explain this. Why throughout history when countries run a "hot economy" does inflation eventually spiral out of control. We don't have to look far to find current examples. Venezuela found that spending more than you take in is no panacea. The inflation rate in this socialist utopia reached 274% in 2016, 863% in 2017, 130,060% in 2018 & 9,586% in 2019. The highest in the world. Imagine that. You do really run out of other people's money, who knew? Ditto for Argentina. It has a median inflation rate of 220% annually since 1980. The government routinely spends more than it makes through taxes & other income. As is always the case with rapid inflation, the price increase in Argentina was fueled by the rapid expansion of the money supply. You have to wonder if the U.S. is about to follow the same banana republic economic policies of Latin America. This kind of irresponsible government policy — printing money like it's linked sausages—has been tried before. The results are always the same: complete economic collapse. If the new administration’s aid needs to last as long as the emergency I suspect the emergency will never end.
4AverageJoe (USA, flyover)
Wanna make Inflationistas disappear? Fix it so that to recoup those trillions, we start with 2017 tax handouts to the very rich, and we end with taxing high frequency trading, and thoroughly review all trusts and passthroughs by the IRS. The tongue wagging will instantly stop.
GV (Oakland, CA)
Paul, how about I just take you word for it, not Larry Summers who is already beating the inflation drum among others and not put all my cash under my mattress?
David (Brisbane)
Cool. We won’t panic then. But I am not certain, who is this advice directed to? And how our panicking or not would affect anything? The beauty of this column is that even if Mr. Krugman is completely wrong and we are in for a sustained period of high inflation, his is still a good advice. We could still say: “Thank you, Professor, it was so much easier to endure this economic calamity calmly rather than as a nervous wreck”. So kudos to Paul Krugman, regardless of how correct (or wrong) his opinion will turn out to be.
Kent T. (Iowa)
Thank god The Donald won't be in charge if something as bad as stagflation gets started. I can't even imagine how bad it would be if he asked his son-in-laws advice on how to fix that one.
JJGuy (Washington)
I've long been dismayed by negative "market" responses to almost everything that benefits labor and/or marginalized people. Responses include "inflation!" and/or "devaluation of share prices for stocks!" Horrors. This can't be good. The wealthy class may have to learn how to exist on a few paltry millions or billions. /S
NeilG (Berkeley)
I imagine that Dr. Krugman is right, but a part of me wishes he isn't. I bought my house when I completed my apprenticeship as a printer. Looking at what I was earning, it was completely illogical for the bank to give me a mortgage. I imagine they expected me to earn more, which I did, but not by much at first. It was only as inflation caused our wage rates to go up that I was able to get my finances above water. I suspect the bank counted on that inflation when they projected whether I could eventually pay the mortgage. That was more decades ago than I want to admit. From what I hear from young people today, they need inflation. Wages at all levels of the economy were stagnating before the pandemic, and I cannot imagine when they will start rising again. Too many young adults have too much debt, especially student debt that they can never pay off or go bankrupt on. Other than direct federal buy-downs of the debts, their best hope is for inflation to make that debt less expensive in current wages. That will enable them to buy homes, have children, and have discretionary funds to enable them to build decent lives. So to me, when Republicans oppose government spending to prevent inflation, they are saying that many of our young adults should have no future.
denmtz (NM)
These are small steps. Simon says take giant steps.
Jeo (San Francisco)
Very timely article by Paul Krugman for many reasons but one of them is that right here on this same day in this same newspaper we had the conservative Bret Stephens writing the following: "we’re spending into an economic boom, which means it’s totally unnecessary, hugely wasteful and probably inflationary ... free money ultimately means increasingly worthless money." There it is, "inflationary", "unnecessary", "free money", and a rousing chorus of "worthless money" right at the end, echoing the most hyperbolic and hysterical scare stories of runaway inflation. Among the many errors in thinking Stephens engages in here is that he sees the recent bill only as "stimulus", whereas it's as much a relief bill as it is stimulus, and in fact the name of the bill is the Covid Relief Bill. Try telling people who've lost their jobs and face possible eviction that $1,400 is unnecessary and wasteful because we might ahve gotten the economy stimulated enough without it. Sure, and meanwhile the person can't pay rent and is evicted. My understanding is that people like Bret Stephens were hired after Trump was elected because the editors felt that they needed to represent right-wing thought more in these pages. I can only hope that now that Trump is gone the heartless, thoughtless, and honestly know-nothing opinions of people like Stephens will be seen as no longer necessary and he'll be shown the door.
pat (london)
@Jeo Quite right. Further, there are 2 types of govt spending going on: 1. The aid that helps to maintain aggregate demand, and thus to keep some business from going under, as well as keeping people from starving. 2. Investment. The right's inabilty to understand that investment is necessary by govts as well as business is mind-boggling.
Nikhil (Nashville)
Completely agree. Stephens loves his anecdotes. Pretty shoddy with data. definitely cherry picks. I'd like to see an economic discussion between him and Krugman. These conservative "thinkers" are pretty much no match for experts. They all love to see the big picture, while the experts stress caution. Krugman is one of the few expert opinion writers out there even in the times. And he generally sticks to economics, but I don't mind his forays into logic. I'd like to see more of Krugman-like opinion writers and less of the Stephens', which might also kick out some liberal opinion writers in the NYT.
Jean claude the damned (Bali)
No inflation...but the prices on every vending machine continue to go up every year and the sizes of the packages continue to shrink. Who are we kidding. There is ALWAYS inflation. We have had ZERO inflation officially for the past 7 years yet every item I buy in the store costs significantly more than it did then. How is that possible.?
DL (Palo Alto)
Is it not also the case (a question for Dr. Krugman) that unemployment is understated -- that there is still significant underemployment and many people have left and not rejoined the workforce? If this is so, then at least some of the demand that could fuel price inflation would be met by increased supply as folks go back to work. No?
pat (london)
@DL Interesting question, but it seems to assume that the US is an isolated autarky, which of course it isn't. Also, people who have lost (left?) their jobs would not necessarily have jobs to go back to.
Len (Summer In Colorado)
Paul, you’ve been right about inflation since the Great Recession. The inflation rate has remained low in spite of the easy monetary policies intended to goose the economy. Over the past year the USA has provided even more stimulus, to the tune of 3-4 trillion dollars. That’s just the USA! My question is probably simplistic but... at what point does inflation bloom again?
PMSF (San Francisco)
But why - why - is the government giving huge amounts of money to people who don’t need it? Families making 100k or 150k per year, with no job loss or any hardship at all due to COVID, getting $1400 checks? Or getting $3k per child? Why? Even if inflation fears are overblown, why run up the debt for no reason? Unless the real purpose is ultimately re-distribution plain and simple. Then say so and argue for it on the merits. I’m a Democrat but I don’t like this. Another $3T spending on the way and may be similarly wasteful. As someone fortunate enough to be in an income bracket that disqualifies me for any of these payments - I’ll happily pay higher taxes to help people in dire straits, but to just hand out money someone making more than $100k?
Meg (AZ)
@PMSF I agree to some extent, that some who did not need it got more than necessary in this last package, but I also think the new infrastructure investment package is a great idea and absolutely essential for our nation's success. The needed workers for all this construction may also help put a lot of upward pressure on wages too and help to restore the middle class.
Sebastian Munoz (Chicago)
@PMSF I think Prof. Krugman would agree with you that the $1400 checks are the least defensible part of the stimulus bill for being too scattershot (not sure about the threshold for the child tax credit). The main virtue of these near-universal policies is political viability. People *really* like the stimulus checks, they are by far the most popular part of the package and one of the main reasons it was possible to get the rest of the bill through almost unaltered in a 50-50 Senate. If this bill isn't popular enough to carry Democrats through the next elections, the outcome would be disastrous. There really is no point in designing perfect legislation in a vacuum if we can't get strong enough public support to pass it.
Hilary Koob-Sassen (London)
@PMSF From what I understand, everyone agrees with you but the additional specificity would have added months to the disbursement at a time when many faced a cliff edge. perhaps the answer is to create a way to send the money back. Or publicly burn your unnecessary check?
James Jordan (Falls Church, Va)
I am not worried about inflation or stagflation. Today I read the Atlanta Fed piece. I also read the breaking news from the Washington Post and the New York Times that the Biden Administration is readying a $3 Trillion investment package. In my view, this is the correct strategy and I would not worry about the idea of a bi-partisan agreement. The majority margin is too thin and it will become a hay maker for the G.O.P. until the election. President Biden should continue to play to the audience and not the orchestra pit in the Capitol. Polls show that the American Rescue Plan has popular support in both red and blue States. Thanks to the photograph of the supermarket abundance and your mention of the container issue in this issue, it reminded me of the reality of the real inefficiency in the U.S. which is intercity trucking. I strongly believe that in economic speak that we must invest in logistics-related infrastructure and now is the time to fund the Interstate Maglev Project that the late Senator Pat Moynihan envisioned. A $750 Million investment, now $1 Billion in a Test Facility similar to those built by the governments of Germany, Japan, and China to showcase and compete America's invention. Clearly, we need to develop a more efficient logistics system in order to increase the output per hour worked. This system will do it and it will pay for itself. The national network built along the Interstates creates a green concrete component manufacturing industry.
James Jordan (Falls Church, Va)
@James Jordan correction: "Thanks to the photograph of the supermarket abundance and your mention of the container issue in this essay," For a better understanding of Senator Moynihan's concept see: www.maglev A national network can also be used to carry broadband to rural states and provide protected electric power distribution. Senator Moynihan introduced me to superconducting magnetic levitation, which he called Maglev for short and the inventors, Drs. James Powell and Gordon Danby, who were scientists at Brookhaven National Lab on Long Island. Japan's Maglev system is based on Powell and Danby's invention and now their government is backing the route between Baltimore and DC via BWI. However the guideway is important as Lincoln knew when he had 6 of the 7 gauges in America ripped up during he Civil War to create the standard that we have now. A national network would be impossible with several gauges. I am writing comments on the Draft Environmental Impact Statement this evening and recommending that the work on Japan's system be stopped until it is competed with the new system developed by the inventors of the system used by Japan. This is too big of a national investment to be determined washout a competition to determine the definitive cost and performance data. The latest Powell and Danby magnets are more powerful and operates in both a monorail and on conventional RR trackage that has been Maglev adapted. And the guideway is cheaper to construct.
Marcy (Fort Worth, TX)
The problem we have now is that Americans are becoming addicted to stimulus. We want more checks. If some Republicans find that it’s politically necessary to support further stimulus payments, inflation will be hard to stop. It becomes an upward spiral, because for politicians to do the right thing, which is cutting off the addicts, it could mean losing their job.
jim (san diego)
@Marcy No, people want to go back to work, in the mean time the government should be supporting them. A check for $1400 doean't go very far. It doesn't replace a pay check but it sure helps people who've been out of a job for months and months when it's not their fault.
Marcy (Fort Worth, TX)
@jim What does "fault" have anything to do with it? When people get laid off, it's never their fault. I didn't get a check last time it wasn't my fault I lost a job. Lots of people don't want to go back to work. I don't blame them. It's common to hate your job. But, we don't normally give money to people for losing a job when it's "not their fault."
Arthur Jackson (London, UK)
Republican economic orthodoxy is essentially lying about facts, and, reflexive performative concern about inflation and budget deficits. It has been this way for a generation and, cynically, they don't even try to formulate new arguments because they don't have to. Their base just doesn't care about facts or objective information, they just don't want brown people getting any government support. Besides, who can remember the last time that contrived concern proved baseless. Just watch Fox and let Hannity do the heavy lifting. Did the war on Christmas start yet?
Kodali (VA)
May be we should look at the running average of inflation to set the interest rates and funding levels to eliminate the influence of short term fluctuations in inflation.
Taoshum (Taos, NM)
Seems clear that no one really knows what's going to happen when this much "stimulus" gets injected into the economy, no one. I, for one, surely hope that the US gets something of value for this expenditure (investment?) of borrowed money. When FDR did this in the 1930's the US built many, many new facilities, highways and other infrax. This time, who knows? I haven't heard one thing that will be built even though our current infrax cries for renewal, yes? Watch the 10 year T-Bill rates carefully... If you own a house right now, consider yourself fortunate, especially if you sell high and then buy low when prices fall... or will they fall???? No one knows.
Meg (AZ)
Well, I'm glad Trump is largely out of the media and easier to avoid - that was like being subjected to Vogon poetry on a daily basis. I think many of us dreamed of being thrown off that ship, since exploding like the lonely carcass of sperm whale would have seemed simply like a pleasant change of pace. By comparison, it is hard to panic these days. There is a lot of debt to pay off and some folks may have stockpiles of some items, as well. Perhaps TP and peanut butter and canned goods will be exempt from upward pressure on prices and the massive number of jobs needed for infrastructure, will be a wedge to lessen some of the stickiness. Perhaps some of what once was sticky will be more changeable and visa versa. Hotels I bet are bracing for a surge of hiring and wage and price increases, as well. A good time for union efforts perhaps?
Danny Mathews (aka Grizzly Cub) (Southern California)
The main difference this time around as opposed to inflation in the 70s would be the amount of individual debt and unequal distribution of the overall money supply. I have a hard time seeing how even a massive infusion of some 3 trillion dollars would result in long term inflation--most of us middle class folks would immediately spend most of the relief and unemployment funds to catch up on rent or mortgage payments (which, if like me, has been suspended for several months), pay credit bills, deferred expenses, and so on--and even more so since we endured months with no relief due to the months long gap between the current and previous relief legislation. To use an agricultural metaphor, our economy is so parched that it will soak up large quantities of money before saturation (i.e., inflation as "flooding") becomes a concern.
Meg (AZ)
@Danny Mathews (aka Grizzly Cub) True, and an infusion of money to spend or pay off debt in the short run is a bit different than large increases in oil prices in the 1970's that impacted the cost of goods sold of just about everything, and then there was consumer expectations too regarding real estate. Maybe it is a good time to increase capital gains, but also phase it in while inventory is low to inspire some to sell now before it takes effect, rather than later. For goodness sakes, we need investors to unload and make more available for owner occupied homes so our economy will be less "feudal" in nature.
Danny Mathews (aka Grizzly Cub) (Southern California)
@Meg Agreed and thanks for the illuminating details. In addition to that it would be nice for rates to be higher somewhat for investments, especially retirement accounts, among other things. The super low rates are great for home ownership but not at the expense of other investments. Raising rates, while putting a crimp in home financing could spur increased economic activity in other demographics.
We should believe Dr. Krugman because he was so very right about the stock market tanking after the election of Trump.
Al Orin (Woodstock)
Give him a break. Prof. K said shortly after his stock market warning that he had spoken too hastily. Meanwhile, he’s been right about pretty much everything else, including the unprecedented lack of inflation we’ve seen over the last 20 years, the Euro and European austerity, and the failure of Trump’s tax break for companies and billionaires to juice the economy.
Thomas Zaslavsky (Binghamton, N.Y.)
@RCH And so wrong about the need for a bigger stimulus in 2009 -- oops.
Michael Loscalzo (Franklin, TN)
inflation is already here for the wealthy- see the prices of Swiss watches, Exotic cars, stocks, luxury homes, Art, offshore wealth (Bitcoin) etc... As all the money is already concentrated it is the tin of caviar not the can of tuna where you find inflation.
pat (london)
A key point is relative movement - for example are wages inflating faster than house prices? Are retail interest rates inflating faster than wages? Is the RPI inflating faster than wages? But a return to 1970s style stagflation, no chance.
Real Observer (Ca)
People are suffering immensely and the relief was desperately needed. All conservatives care is about the 0.1 percent of their wealthiest donors who have received 10 trillion in tax cuts and cheat heavily on their taxes,while the conservatives produced stagnating middle class wages and the poor got poorer, especially getting hit hard in the pandemic.
Concerned (Cambridge, MA)
@Real Observer Saw an article about North Dakota creating an estate tax haven for ultrarich in all states. What about the interests of The People? What will it take to subdue the GOP in congress so that these crimes don't take hold? 2022 threatens to bring GOP control of Congress. Massive state and local GOTV and organizing--- empowering suppressed Dem. voters. This was achieved in the GA runoff by decisive action of Stacey Abrams + diverse local groups reaching deep in every corner of the state (see GA comment below). Such efficient grassroots orgs are listed by state at
Stew R (Springfield, MA)
Mr. Krugman believes in big government, and big government spending, regardless of the circumstances. He is "talking his book", as he almost admitted outright to Larry Summers, another Democratic economist who is concerned about the massive government stimuli of 2020 and 2021. The size of these multiple government giveaways dwarfs the Obama stimulus bills by many multiples, as Mr. Krugman knows but neglects to mention. In addition, the unemployment "top up" bonus encourages workers to remain unemployed. The tariffs on Chinese goods, whether advisable or not, adds fuel to the fire. High inflation is not certain, yet beyond doubt a serious risk. Bottom line, it's a price Mr. Krugman is willing to pay to implement his preferred social engineering ideology, regardless of its effect on savers and the middle class.
René Pacheco (West Nyack, New York)
@Stew R Yes, there is no question the writer of the above comment is one of these conservatives who prefer to support the 1% wealthiest Americans. This writer fails to mention the economic policies of the right have created one of the most unequal societies in the world, more millions of people incarcerated than in any other developed country, more people without health insurance, one of the more people impoverished than any other developed country, a country were racism and white supremacy with 400 years of history is more prevalent than in any other developed country. And it is so easy for these segregationists to blame the government for these economic maladies. In the last decades starting with your, probably, beloved Ronald Reagan and ending with the policies of the criminal Trump, the middle class has suffered economic devastation vis a vis the trillions of dollars the wealthiest has benefited with tax wealth social welfare while 99% were exploited and left out of the economic sponge cake. The economic policies of president Joe biden and the analysis of Paul Krugman are right.
Stew R (Springfield, MA)
@René Pacheco Ad hominem remarks coupled with a one-sided worldview may be satisfying, but add little to the debate between liberal Democratic economists. All economists recognize the danger of potential inflation from these stimuli bills; the unknown is the degree of danger. Reasonable people can debate this question.
Richard Ralph (Birmingham, AL)
@Stew R exactly... he's sticking it to the middle class, saying there won't be inflation, but if there is, it's your problem and not mine.
Woof (NY)
There are two kinds of inflation 1. The first kind is inflation in the price of items made abroad. Flat Panel Televisions, Iphones, or tomatoes from Mexico. Those prices are NOT set by supply and demand in the US, but by supply and demand world wide. They reflect the price of foreign labour and global commodities. Chinese wages can not rise much or production will shift elsewhere. Alas the commodities that go into the production of these items are different. Metals are up 68.8% from one year ago. Non Food agriculture by 68.5%. Food 38.6%. (Data The Economist 3/20/2021). Thus, we will see inflation in these prices 2. The second kind of inflation applies to products and services made Nationally. Notably, that includes the cost of homes. There we DO see breath taking inflation To Cite the NY Times "A recent report finds that home prices rose 14 percent nationally over a year. " By Michael Kolomatsky NYT Jan. 14, 2021 (The latest figure is 16% over one year ago) A second item of concern is health care. Physician salaries rose 7% annually between 2012 and 2018 - as supply and demand is set Nationally - foreign physicians are kept out of the US market. Indeed, the health care market is essential National, and undergoing inflation - see your premiums Finally, The Fed uses a measure of inflation that leaves out : Food, Energy and Home prices . Even though those are real and major expenses to Americans.
Thomas Zaslavsky (Binghamton, N.Y.)
@Woof In case you didn't know, the Fed's inflation measures are not the same as the CPI, produced by the Department of Labor. The Fed is not studying the effect of inflation on individuals, but the significance for predicting future prices. But maybe you didn't know this.
Woof (NY)
@Thomas Zaslavsky Correct, it is somewhat different but what NY Times readers know is the CPI so that is what I used That said, NY Times readers over 62 should know that the Government tracks a CPI for the elderly, CPI-E , that shows higher inflation because the elderly do have higher medical expenses, but does NOT use the CPI-E to adjust social security increases, effectively decreasing social security payments every year
adam smith (California)
Paul Krugman has a view but probably the most honest and informed view is that no one knows what the risk is of inflation at this time. The sharp rise in long term Treasury bond yields is ominous. 10 year Treasury bond yields have gone from less than .5% to 1.7% per year in a very short time. If the Federal Reserve achieves its goal of raising the rate of inflation to 2%/year, it would seem reasonable that at Treasury yields would rise to 2% or more because investors tend not to not invest in Treasury bonds to take a real loss after inflation. There is no clear indication YET that the rate of inflation would rise to more than 2% per year.
Thomas Zaslavsky (Binghamton, N.Y.)
@adam smith You are agreeing with Dr. Krugman. No likely prospect of worrisome inflation.
jb (colorado)
Another potential aspect of a rise in prices occurs to me. Many business folks may read the Henny Penny tales of coming inflationary pressures and decide it's a good time for raise some prices and add to the bottom line---just in case actual inflationary events do arise. Having watched the greed of major corporations over the last four years i.e. using 'bail out' funds to buy back stock among other ploys, it will not surprise me one bit. First to go up: air tickets--to cover the 'deficits' they all faced--while continuing to pay senior execs just like the good old days. I fear it will take more than the sea change we're seeing in our federal government's sense of right and wrong to redeem the corporate set from seasons of free flowing excesses.
Nicholas (Watertown, Massachusetts)
Can Krugman or anyone else talk about the inflation that matters? It's appalling and shocking that so many economists are focusing on basic costs of spam, bottled water, milk or whatever else (consumer price indices) as the measure of inflation. True inflation is showing up (exactly because money is cheap, and in part due to high income inequality) in all the places it hurts most. Rent / real estate, education, healthcare, childcare, organic foods, stock prices, psychotherapy. All extremely expensive, and going up fast.
Botman (not New York)
I had purchased a condo, first to supplement my geriatric mother-in-law, after we placed her in a long-term care facility, I used it as a rental property. I use homestead exemption for my personal residence. Property taxes have skyrocketed. Nearly 20% from the prior year! The value of the condo was increasing so I wasn't concerned. Now the market for condos has plummeted. It's quite difficult to get a favorable reassessment. The HOA fees have also increased by nearly 4-5% per anum. I can only pass on a small amount to my renter. Other services in the area have increased beyond 4%. Last year, before covid, I was going to re-marcite my pool. I learned that over the previous few years the new marcite was watered down with filler. It once lasted 15 years, now 5. Inflation via "shrinkflation". Then we have hedonics. To make a long story short, a buddy needed a colonoscopy. Since a member of his family had colon cancer he needs one every 5 years. 5 years earlier the prescription for a colon wash was less than twenty dollars. The new substitute was $156.00. At best marginally better. There's more, but life is short!
Boston Lover (Boston)
The house of cards constructed by the federal reserve will come crashing down when other countries stop accepting the US dollar as the international reserve currency.
James Ryan (Chicago)
@Boston Lover and what, pray tell, is going to become the new Reserve currency? The only likely candidates are the euro and the renmimbi. The European Union is never going to get its act together to become a reserve currency and nobody trusts the Chinese to be an even remotely honest broker. So, the dollar will be the reserve currency for at least the next 25 to 50 years.
Boston Lover (Boston)
@James Ryan If it weren't so bulky, I'd rather have my savings in canned tuna fish than the dollar. But seriously, the remnimbi and the euro are possible candidate reserve currencies, as are bitcoin, or some other medium that governments can't tinker with. Just my opinion...
Economics: the dismal science (that desperately needs improvement)
How can gasoline prices be going up, which they are, when unemployment is high, we're staying in place more than ever, both willingly and unwillingly, thus using less gas, and electric cars are making a dent in demand? It reminds me of when bankrupt General Motors pleaded for government funds -- yet their car prices never dipped: How is that capitalism, supply and demand? How can a company with slow sales ask and get the normal price for its product? (This macroeconomist thing is too crazy for words.) "Inflation comes in many forms ... . Economists from the Keynesian and monetarist schools disagree on the root causes of inflation, underscoring the fact that inflation is a far more complex phenomenon than one might initially assume." -- "Investopedia," April 10, 2019 [Shouldn't wise guys have ascertained at least the basics after centuries of searching? We're dying here, guys. Do something! It seems that all we know is that nothing we try works very well, like thoughts and prayers in another demesne.]
Son Of Liberty (nyc)
The Republican's stance on how the federal government should respond to a crisis is deeply rooted in the "profound" economic philosophy of Hebert Hoover. During the Great Depression, Hebert Hoover tried to convince Americans that the measures they were calling for might seem to help in the short term, but would be terrible in long run. Hoover like Donald Trump claimed that he cared for common Americans too much to destroy the country’s foundations with socialist institutions. In spite of their wrongheaded economic philosophy, the Republicans still have an "important policy role" to play in America, since they should be tasked to investigate how space lasers are starting forest fires and weather Joe Biden's Dog Champ should be in Washington.
Steve (Nirvana)
The real issue about "inflation" is not between "sticky" and commodity prices but between the real economy and the speculator economy. Over the past 40 years, Republican politicians have been directing tax cuts and therefore lots of extra cash to the very wealthy who only spend a tiny portion of it in the real economy. Instead, they buy up assets that have been going through the roof. Some things like a piece of fine art that cost $20,000, 70 years ago and now goes for $100 million are not of much consequence. However, real estate and income earning investments are critical to the future of average Americans. This inflation of assets have made merely wealthy families fabulously wealthy while making it almost impossible for over 80% of Americans to put their own roof over their head or prepare for their retirement. This has been obscured to some extent by the wealth transfer from the elderly to their children. However, those without recourse to an inheritance really have no future. This is the legacy of 40 years of Republican incompetence and corruption.
TB (New York)
This is a very superficial analysis of a profoundly important issue. For more than a decade all those economists at the Fed with their Ivy League PhDs have essentially been spending $5 to buy a dollar's worth of economic growth, and have distorted free market capitalism beyond recognition in the process. Instead of saying, "This is great, we can't seem to create inflation no matter what we do. So let's keep printing money", they should be humbly--very, very humbly--asking, "Are there deep structural problems with the economy that were exacerbated by the Fed's actions?".
Richard Ralph (Birmingham, AL)
Totally agree. Unfortunately it seems that Krugman has given up on using serious economics-based arguments in his columns in favor of becoming a purely political writer.
RjW (Chicago)
The full bore disfunction of Republican leadership has created shortages of everything from supply chain items to a shortage of reason itself. Like the vaccine, supplies of everything else will soon return to normal, or better. This will suppress price increases.
Marcy (Fort Worth, TX)
Inflation is here. It’s already begun. Gas prices are more than double what they were during the lows of the pandemic. Home builders are reporting record lumber prices. This is not like 2010-2011. We had a stock market crash back then. House prices crashed. I lost 60% of my 401K and it took several years for me to get back to where I was. We’ve been hitting all-time highs in the stock market over and over again throughout last year and into this one. House prices are up in the sky. And the government is giving out trillions of free money. A family of four with average income and even above average income got a whopping 8 GRAND in their bank account in the last few months, even if they didn’t need the money. This is not the same thing as what happened during the Great Recession. Not even close. We’ve never had anything like this. All this new money printed by the government will chase increasingly scarce goods. There is no free lunch. Inflation is very real and it will catch people by surprise. It's why I've been spending like crazy on clothes and other items before things really take off.
Eric (DFW)
@Marcy You shouldn’t worry. All that money is going to end up in the hands of broke millennials who are desperately trying to stave off student and housing debts. It’s going to go straight towards paying bills and you’ll hardly see a speck of inflation.
Richard Ralph (Birmingham, AL)
Krugman wants to impose a regressive inflationary tax on the savings of lower and middle-income Americans. The rich won't be affected because their money will be in stocks and index funds. This isn't economics, it's partisan politics.
Nicholas Halfinger (2021, January)
Inflation is relative. You hear much concern about prices going up, but the failure over the last several decades for wages to keep up with inflation or the overall growth in the economy somehow never seems to get as much concern. Perhaps it has something to do with the huge concentration of wealth at the top end over the same time period... Perhaps because there is a connection? I have a number of Lionel trains, some that came down from my father. I've recently picked up old Lionel catalogs from the 1950s and early 60's. It's an interesting exercise to look at the price of a train set from back then, and use an inflation calculator (there are plenty on the internet) to translate those prices into contemporary numbers. While an exact comparison with comparable modern train sets today is tricky (you wouldn't believe some of the new features), it still gives an idea of how much inflation there's been over time - not all that much. And maybe some differences too. A 70 year-old postwar Lionel train can run as well today as it did then with a little maintenance. I'm wondering what we can buy today that will be able to make that claim 70 years from now. Anything that relies on computer chips is lucky to last more than a few years - and there's no way to fix it if/when it goes bad.
RjW (Chicago)
Isn’t it all just supply and demand? Our ever improving technologies will continue to supply more of everything at less cost. Soon we may even be able to trim back our plundering of the natural world. That’d be grand. It’s hard to imagine shortage based inflation coming back any time in the foreseeable future. Get an electric car and advocate for forest conservation. The rest will follow right along.
pat (london)
@RjW Taking that further, robots will do all the jobs, but who will decide how much humans get to spend on the products of robots.
RjW (Chicago)
@pat True. At some point we’ll be paid to rub the persons shoulder next to us. If you really want to work, you might have to pay for the privilege The future is hard to predict tho. Thanks for your comment.
John R. (Harrisburg, PA)
For me the worry isn't inflation due to an over supply of dollars, but an inflation due to supply chain issues. Try buying an appliance or a car stereo right now. If these shortages continue, we may see inflation similar to the early 1980s, when an oli embargo added to inflationary pressures. Although there are some differences now. We are a much more global economy, which means competitive pressures can keep prices down. And we are much more efficient at producing things with all of the technological advances we have seen the last 40 years. Still, these supply shortages have me much more concerned than the over supply of cash from the recent stimulus.
Open Minded Reader (Michigan's Flood Plain)
For the longest time, Dr Krugman has been advocating for significantly more government spending. The cost of borrowing is at historic lows; things have changed so there is no risk that injecting huge sums of money into the economy will lead to inflation. Now that the Biden administration is taking his advice, he seems to be hedging a bit: "There will almost surely be a rise in inflation, too, possibly well above the Fed’s target rate of 2 percent a year." (Don't worry, it will probably just be temporary.) "And it’s certainly possible that the American Rescue Plan will turn out, in retrospect, to have been too much of a good thing." I realize the overall tone of the article is that there is still no need to panic, but I sense a change from the unequivocal statements of the past.
RjW (Chicago)
@Open Minded Reader The full bore disfunction of Republican leadership has created shortages of everything from supply chain items to a shortage of reason itself. Like the vaccine, supplies of everything else will soon return to normal, or better. This will suppress price increases.
Chas Simmons (Jamaica Plain, MA)
@Open Minded Reader I don't think this is much of a "hedge". Krugman is describing what he and his near colleagues have been saying for several years. Let me explain your quotes. 1. When he says "There will almost surely be a rise in inflation", he is talking about the "headline" rate, which he has NEVER worried about. Economists have other, more useful measures, as he explains. 2. When he says "it's certainly possible the American Rescue Plan [will be] too much of a good thing," he is merely showing proper caution with economic prediction. (After all, no one ever gets it right.) In other publications, Krugman (Prof. Delong, etc.) have made it clear that they don't know the exact amount that should have been legislated, but they think "undershooting the policy response would be a far more dangerous prospect" than overshooting. [That quote is actually from computational social scientist Austin Clemens.]
Kathy Lollock (Santa Rosa, CA)
Dr. Krugman, thank you for this explanation...and reassurance. I just had my 2nd Moderna and am suffering a bit of "brain fog." Nothing to add other than to say yet another lesson in economics from our Times' professor.
Glenn Ribotsky (Queens)
We might well have an uptick in inflation from the various relief bills of the past year. And, actually, we need it--we've been in a stagnation situation for quite a while now. And, if inflation starts to get a little overheated, the Fed has a number of interest rate increases and other tactics it can use to cool it off. But stagflation? It ain't happening. Come back to talk to me about that possibility when the minimum wage all around the country reaches a level double what it is now and the average wage is double THAT. Then it might be a possibility.
Warren Trout (Seattle)
Compare prices today with 10 years ago. Inflation is not short term and mild.
As a bad economist that he is Paul Krugman voluntarily " forgets" to say who bailed the banks out in 2008. Whose money refinanced and litterally paid the bankers themselves with their high salaries, while poor people had lost , not only their homes, but the money that they had put in it. Plus the interest. But thats is not 'real economy according to Paul Krugman. Instead he brandishes the threat of inflation ( for giving too much money to the poor ) and feigns to examine ways not to be scared too much. For the rich who invest in the value of money. The poor , they have only their work force to sell.
Ma (Pa)
It's about balance. We need some inflation to deflate asset (house/stock) prices, which are currently above 1929 levels and heading up to 1999 (all time peak). I am not interested in taking a mortgage that is 20X my annual income to buy a house, and I don't want to live through stock market crash bigger than 1999 / 2009 combined....
pat (london)
@Ma Maybe I'm misunderstanding you, but it seems that your statement could be unpacked a bit. Wage inflation may make your mortgge cheaper (assuming you have a fixed rate), but house price inflation will not make houses cheaper unless house price inflation is below wage inflation.
Ma (Pa)
@pat House values (like the stock market) tends to move inversely with inflation (or longer term interest rates). Inflation does include rent, which like themmortage payment, is now VERY low relative to home price thanks to our low long-term interest rates. The dems are just being responsible & looking to stop the epic bubble that is now present before we get another crash that seems to be what the republicans donor class seem to seek for profit at ordinary folks expense....
pat (london)
@Ma House prices may be excluded from official inflation figures, but that does not mean that house prices do not increase (inflate). I've always found this a rather strange exclusion given that houses are the single largest purchase that most people make. And getting the timing wrong on house purchases is probably the biggest single cause of personal bankruptcy (though in the US inadequate health insurance may take that accolade). If you are on a long term fixed interest house mortgage then naturally any wage inflation would make your replayments "cheaper", but significant house price deflation would also mean you are paying for a lot less, and possibly in a position of negative equity. I am not aware of any analysis which confirms that "House values (like the stock market) tends to move inversely with inflation"; this implies that house prices or stock prices go down when RPI increases - this is clearly not the case. A key point is relative movement - for example are wages inflating faster than house prices? Are interest rates inflating faster than wages?
Scott (Illinois)
If you are young, you may have never seen significant inflation. There are risks, but there is also an upside for people with rising wages who are then able to pay off cars and homes with cheaper dollars. In 1950, today's dollar was worth about nine cents. Two or even three percent inflation is a pretty low rate historically. If most of inflation is caused by rising wages of low to mid income workers it could be more beneficial to the country than almost anything else, and distracting a disgruntled citizenry with opportunities for higher earnings may have a medicinal effect that would tend to have a stabilizing effect on a rocky social landscape.
Tom Krebsbach (Washington)
I consider myself a progressive because I believe that government should do all it can to help the people of a nation. This country has many needs that are unmet, and that is why I supported and continue to support Bernie Sanders. But the immense quantity of debt that this country owes, not only to American bond holders, but to China and other international bond holders truly makes me uncomfortable. I keep wondering if this immense debt, growing by the second, will at some point cause America a great headache. Why can't this country pay more for the programs that it needs by taxing those who make a windfall off of this economy? Why do we allow the wealthy to pay a tiny percentage of their wealth in taxes or no taxes at all when people who are struggling to get by must pay part of their income in taxes? It makes no sense. Those who have benefited financially the most from this country, whether it be because of dumb luck or smart initiative, should do the most to pay for the programs that America needs. Isn't it time this country starts paying for its needed programs and attempting to reduce its debt by taxing the wealthy and high income earners in a manner that is fair?
ken b (seattle)
@Tom Krebsbach We used to tax the wealthy and high income earners in a manner that was fair before 1980.
Economics: the dismal science (that desperately needs improvement)
@Tom Krebsbach Don't worry about the national debt until it gets to be @ 150 percent of GDP. We print our own fiat currency, so we can always pay our bills. Inflation can get too high if we get near zero unemployment and still keep printing money. For a much better explanation, please read economics professor Stephanie Kelton's "The Deficit Myth."
Night Sparrow (Not where I want)
Agreed. About China fears, keep in mind that while the debt is there, what would happen if for instance China pulled it's loans? If we suddenly could not afford their goods it would definitely hurt us but it would hurt China more. It's playing catch up in most of it's regions not from the failure to keep up infrastructure and wages from the 70's like we are. They are having to catch up from what was the 30's for us. There are whole towns barely electrified or with flushing toilets. By the time they do we will already have figured out what to do to save the water we waste on toilets now. They cannot afford to threaten us over the debt. Yes China debt is concerning but not in the ways republicans bellow about.
Woof (NY)
Mr Krugman, a former trade economist, is entitled to his opinion, but does he have the fiscal and monetary background and experience of Mr. Summers? .... there is a chance that [this] macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability. ... given the commitments the Fed has made, administration officials’ dismissal of even the possibility of inflation, and the difficulties in mobilizing congressional support for tax increases or spending cuts, there is the risk of inflation expectations rising sharply. Larry Summers, Washington Post Lawrence Henry Summers, American economist, former Vice President of Development Economics and Chief Economist of the World Bank, senior U.S. Treasury Department official throughout President Clinton's administration, Treasury Secretary, 1999–2001, former director of the National Economic Council for President Obama (2009–2010). The answer is no - and Mr. Summers sees it differently
Rogan Thompquist (Paso Robles, CA)
@Woof Summers was one of the people most responsible for the deregulation of financial institutions; the ending of Glass-Steagall, in the Clinton Administration. He should get a great deal of the credit for the recession that showed up in the stock market in 2008 and greatly damaged the world economy. He gave bad advice to Obama and continues to give bad advice. No one should be listening to Summers.
ken b (seattle)
@Woof I was born in 1949 so I may have missed the massive inflation following WWII. All I remember is the stagflation of the 70's and the rollercoaster ride of interest rates in the 80's. There are plenty of Economists as illustrious as Larry Summers who openly disagree with Larry Summers. I read Larry Summers' op-ed in WaPost. If memory serves me well I don't recall him addressing the issue of taxes and what moderating effect this might have on potential inflation.
bcw (Yorktown)
@Woof I'm less interested in how many government jobs Summers has had than how often he has been wrong. Summers was one of the central figures pushing to keep the Obama stimulus package too small. He got fired from his job managing Harvard for saying stupid things. He was the architect of the calamitous handoff off the post-Soviet government businesses to the oligarchs that drove its ultimate collapse back into a totalitarian state. He got pushed out of the World bank after advocating dumping waste in the poor states. Now, you Woof, also have a history, I remember ten years ago when you were one of the persistent voices claiming the policy of easing meant inflationary catastrophe was inevitable. I find it very hard to see inflation coming any time soon given the persistent job desperation of most Americans.
David Hardtke (Oakland, CA)
People are starting to doubt the official inflation numbers because the prices of housing, medical care and education go up much faster than the number the economists quote. In fact, most goods and services requiring domestic labor go up in price faster than inflation while imports get cheaper. Have you tried to get your house repaired lately? The wage-price spiral we have been taught to fear seems to be happening in a large part of our economy.
stan continople (brooklyn)
I generally agree with Dr. Krugman, but we seem to be governed by fallacious indices that only benefit some small segment of the population. Not including food or energy in the inflation index implies that most people do not consume much of either. Anyone who's grown accustomed to eating knows how much food costs have increased even over the last five years, and that's even before restaurants and Uber Eats have jacked up the price. The unemployment index is another baseless number, which is always used to tout the health of the economy, yet does not take into account whole swaths of those not working. The gig economy has only rendered those numbers even more unreliable. When I hear these doctored figures proclaimed unquestioningly on a nightly news show, I can only think that they're not much different than state media in Russia or China, where things are also perpetually rosy.
Larry Williams (Libertyville ill.)
No serious inflation resulted from the bigger spending bill passed last spring, and if none results from Biden’s 1.9 trillion bill, we should put that idea to rest. There are more things that need to be addressed that are going to require additional deficit spending, and by getting rid of the filibuster, as it is now abused by the republicans, and modestly increasing taxes on the 1% it can be done.
signmeup (NYC)
Funny, how the REPUBs never worried that their "welfare for the rich" tax give away to the wealthy and the corporations would create inflation. They lied and said it would cause "investment" did, as companies "invested" in buying back their own stock and when the wealthy "invested" in high priced collectibles and stocks. Why do we continue to discuss everything in the context of what REPUBs think...cause they really don't think, except about themselves and their pocketbooks.
Ozark Ork (Darkest Arkansas)
@signmeup First double plus good comment I have seen here today. Until the Republican-Reptilian party is burried in a crossroads with a stake through it's heart, se will continue to have "debates" of this sort because 40% of the electorate believes everything they hear on the Fake News propaganda organs. And some of them have gotten elected to congress... The rest of them (R-Rs) are too beholden to their .01% Donor class to care about the rest of us. We are merely future members of the homeless problem to Republicans.
Beth (Colorado)
When I read your column, I thought about how I bought my first house in the Reagan years when interest rates were 14%.( I did a balloon with a plan to refi when rates came down.) At that time, Republicans were in heaven! Their capacity for self-delusion is infinite. Then I saw a small business owner on the PBS News Hour who complained that the Rescue and other covid relief is hurting him because he can't get people to work for him when "they're getting too much on unemployment." I was puzzled as I tried to imagine just how low this guy's wages must be if they are less than unemployment ...
Roger (Iowa)
@Beth You're not just competing on wages. You are also competing on workload. You might make somewhat less on unemployment but you get to play video games all day. I actually have some sympathy for the thinking.
TRKapner (Virginia)
@Beth Reminds me of one of the challenges to the groupthink during the Reagan years. Paraphrasing the Reagan ideology, ' the wealthy don't have incentive to work because they don't make enough, the average worker doesn't have incentive because they make too much.' It all comes back to a Randian notion that without a ruling class of elites, we can't possibly make it.
Philip Brown (Australia)
@Beth Far too many business owners, yearn for a return to peonage, or even slavery. If they could only pay their "workers" little enough, they could be hugely successful. "I pay my people $3 an hour. If they work 100 hours a week, they have enough to exist!"
Ronald B. Duke (Oakbrook Terrace, Il.)
All the talk is about why inflation is OK, but nobody tells us what's so bad about a little deflation? Well, what would be wrong with prices at the store or gas station going down? Why would people complain if their rent went down, if their savings were worth more? Who is hurt most by inflation? The poor who the government says it most wants to help. Who benefits most from it? The rich--owners of property and stocks, the very people the government wants to 'soak', as in 'soak the rich'. I say, let's try deflation for a while, we might find out we like it better than inflation.
Doc (KY)
@Ronald B. Duke Was bad about deflation is going into what’s known as a deflationary spiral. People/businesses hold off on purchasing goods because their expectation is that the price will be lower in the future. Economic activity slows. People lose their jobs. Prices go even lower. The cycle continues.
grennan (green bay)
@Ronald B. Duke For more than a decade in the recent past Japan experienced deflation, and its economy suffered. It tried multiple stimulus plans to kick start things, but the sluggish spiral continued In theory, the savings accounts you mention wouldn't really be worth more, as interest paid drops to almost zero and there's less to buy because sellers withdraw from markets as prices fall.
Toby Shandyq (Shandy Hall)
Would you buy a loaf of bread today if you knew that next week you could buy two loaves for the same amount?
Andrew (Colorado Springs, CO)
Odd that Republicans an other conservatives didn't worry about inflation when Dippy Donnie gave bazillionares a 2t handout, but some how giving the same to help Joe Sixpack keep his house is going to push us over the edge. Another panic switch is that labor shortages will cause inflation as the job market gets tighter. In, say, 1950, that could have been a problem. Women mostly didn't work paying jobs then, and employment among men was 95% - a tiny blip and suddenly there weren't enough workers to go around. We aren't exactly in that situation right now, kind of the opposite - there are too many available people and too few jobs. Wages will not skyrocket, even if the official unemployment rate gets low. Rather, Mr. Rich will be forced to hire someone who's been sleeping on Mom's couch for a year because he lost his job. There are still plenty of those left over from '08. This isn't like Dippy D's bailout, which came because he decided bazillionaires are amazing people and needed a big handout. It's more like Pearl Harbor, where suddenly we're at war - we're spending money to recover from a disaster.
Steve (Nirvana)
@Andrew That's what happens when the US has only 2 political parties and one of them (the Republicans) should be facing a RICO investigation.
Smilodon7 (Missouri)
It’s disaster relief-and it never should have been done through unemployment. Since when in any other disaster do you only qualify for aid if you had been working at the right job for a long enough time?
Socrates (Downtown Verona, NJ)
The Republicans will insist that the sky is falling as the American economy infrastructure investment renewable energy transforms the a new federal voting rights bill is wages unions health insurance coverage child poverty the rich are forced to pay their fair share of a basic gun control law is America is made decent again by Joe Biden and and a Democratic Congress. Yes, prices will go up a bit, but overall most Americans will be doing better and the country will be doing better thanks to progressive public policy. And the Republican Party will demand a full stop to all American progress....because that is who they are. D to go forward; R for reverse....again and again and again.
Blue Moon (Old Pueblo)
@Socrates Agree that the $1.9-trillion relief package and the $3-trillion additional spending proposal are both great news for the country, but my fear is that while these can be passed using reconciliation (since they are budget matters), Biden and his fellow Democrats may lose steam on legislation that cannot be passed in the same way: e.g., voting-rights and gun-control laws. Democrats must abolish the filibuster (i.e., not just require senators to talk through it - actually eliminate it). If federal voting-rights legislation is not passed soon, that could spell disaster for Democrats in the midterms next year. And then a host of critical legislative issues would fall by the wayside if the GOP regains control of Congress - in particular, efforts to combat climate change. That would be calamitous for the country and the world. And while Democrats are at it, they should keep pushing for statehood for D.C. and Puerto Rico, and they should add a justice to the Supreme Court to compensate for the Garland debacle. Democrats need to work on all these things prior to the election next year. They cannot afford to simply rest on their laurels with what they can get through using the reconciliation process. As good as all that is, it won't be enough. They need to keep going.
hen3ry (Westchester, NY)
@Socrates, the Democrats need to educate the public about how ruinous GOP economic policies have been for them. Americans need to understand that voodoo economics and everything behind it has led to the sorry state our infrastructure is in, the lack of a decent social safety net, and yes, the Trump presidency. Americans need to understand that a well run and properly funded government makes a huge difference in the lives of its citizens. Governments have powers that individuals and small groups do not have. A charity can limit its help to its co-religionists if it so desires. Governments, good ones at least, do not do that. The GOP has demonstrated its bias towards the richest and the corrupt in America. After the debacle of Trump's presidency one would think that more Americans understand that and that the GOP is NOT interested in them at all. What we are to the GOP is a source of votes and cheap labor. We will never be more than that. GOP does not stand for Grand Old Party. Greedy Obstructionist Power hungry Politician is more like it. 3/23/2021 9:13am first submit.
R. Law (Texas)
@Socrates - Indeed; and pro-actively, the Biden administration needs to invoke Obama era regulations to prevent commodities speculation that caused unwarranted price spikes in Obama's terms. In particular, it should be remembered how rising gasoline prices have, in the past, acted as an economic drag on Dem administrations/Progressive programs.
Dana (SF)
You forget supply shock. Taiwan semiconductors disappearing after China blockages the island. Etc.
Agostini (Toronto)
The current way of measuring inflation is flawed. The inflation rate is based on consumer price index consists of household items like appliances, cars, foodstuffs, and items from Walmart or Costco. Most are manufactured goods imported from low wage nations. Their prices do not go up. The huge tax cuts and stimulus money have caused big asset inflationary bubbles which are not counted by Fed as inflation. Basically the US is exporting its inflation to the rests of the world. Ultimately the Treasury market will wake up one day and find no foreign buyers. When the offshore inflation hit the US. The only way out is devaluation of the US dollar because of our debt level. Not a pretty picture.
Ronald B. Duke (Oakbrook Terrace, Il.)
@Agostini; How right you are! Nobody will see the bust coming until it busts, then it'll be too late. What'll corporations and governments (local, state, federal) do when debt service eats up all their income and they have to make big cutbacks and raise taxes, too? Why can't anybody make the commonsense recognition that constantly inflating the money supply must decrease the value of the money (inflation)? Yet, all top government officials, as well as left-leaning economic commentators (no names mentioned) reassure us that we have nothing to worry about.
Smilodon7 (Missouri)
Tax it back from high earners. That decreases the money supply.
Wise12 (USA)
Almost by design the entire western and now eastern major economies are structured to increase aggregate supply regardless of aggregate demand. If logic were in effect prices should be declining. There currently is no true market allowed as the emphasis is on that aggregate supply being western nirvana...
Ronald B. Duke (Oakbrook Terrace, Il.)
@Wise12; Yes, yes! And, if we're so worried about deflation, why aren't we blocking further wage-depressing immigration? Forcing full employment and full production, and at the same time pressuring wages while calling for a higher minimum wage is economic lunacy, but it apparently makes political sense. What can you say about a nation whose political imperatives are the opposite of economic commonsense?
Paul (Adelaide SA)
If I ran a business in the US what would I do? $2T was pumped in last year, following the tax cuts in 2017. $1.9T is being pumped in now. The NYT reports the Biden administration is mulling another $3T on infrastructure and other support. They're still pushing a doubling of the minimum wage. The Fed rate is essentially at zero. Consumers already have over an extra $1T in savings. Then there are the calls for greater equality/equity. The place has been largely locked up due to the pandemic, and now with the vaccine people are raring to go. If ever there was a time to raise prices this seems to be it, even if cost and wage growth remains muted. Indeed if inflation doesn't rise it would suggest the economy will remain in relatively poor health. 2007-2008 was an economic crisis, 2020 was a health crisis which cruelled the economy. The 2 are quite different. The first required an economic fix, which perhaps wasn't enough. The latter requires a health fix, which is underway and end loaded with huge stimulus.
sj (kcmo)
@Paul, the $2T stimulus was intentionally directed to the wrong entities. It--in addition to the 2017 tax cuts--have only increased inflation in the financial markets and collectibles, while homeless camps and food banks have increased....probably high-interest debt, also, by those affected by high un-to-underemployment. No worries for all of these hand wringers worried about their retirement investments....there is talk about taxing a step-up in basis if investments are sold--so just keep living on those dividends and re-balance into safer interest-bearing securities before the tax laws change!
jerome stoll (Torrance)
When the Federal government has the tools to control inflation, which it does, whatever is needed to stabilize the economy, I am certain that if you trust the Fed to do the right thing to control inflation, it will. Inflation under control is a good thing. It is a symbol of a growing economy.
rational (Washington)
@jerome stoll The Fed has a poor track record of anticipating and acting. It only knows to react massively by dropping rates and buying assets to provide massive liquidity. My dog can do that -- print easy money to juice the markets. The Fed is banking on the status of the US dollar as a global reserve currency and mindlessly exploiting that advantage. When that lasts, they will be caught with their rates down.
Ronald B. Duke (Oakbrook Terrace, Il.)
@jerome stoll; You're a trusting soul! The FED may have the tools to control inflation, but the decision to do so is political and probably made in the White House only after the president has come under so much voter pressure that he finally can't avoid doing something. His first effort will be verbal, the well-known 'jawboning'. Actual spending cuts and higher interest rates will come only when things are already ballooning badly out of control. It would be better and ultimately easier not to let inflation get going in the first place. (And it's probably already too late.)
Juh CLU (Monte Sereno, CA.)
Questions: considering all of the factors that contributed to the 1970's Volker-era inflation, how are we different? Is our global aggregate production capacity far in excess of what it was in the late 1970's? Also, many suggest that Nixon's Wage-Price Controls, OPEC's price hikes, and not raising taxes to pay for Vietnam all contributed to inflation. We know this era is different. ( Then it was the era before the internet or even the Leveraged Buy-Out.) Friendman's Monetarism was the flave of the the day. What's ultimately different now?
MKR (Philadelphia)
@Juh CLU We were all Keynesians then (per Nixon). Monetarism was yet to be the flavor of the day. Nor was it the "Volcker era" -- he became fed chairman in 1979.
Tom (Gawronski)
Thank you for correcting the record on Volker. It was his tough love approach that broke the back of inflation not as implied by the original comment that he brought on inflation. It could be argued that he exacerbated unemployment by ramping up interest rates to levels never seen, but that was part of the medicine. The real villain was Nixon's wage/price controls -- like shaking an unopened sofa bottle, then giving out to someone else to open. Think of that, a Republican putting on wage/price controls.
pat (london)
@Juh CLU I'd say the 70's quadrupling of OPEC oil prices was one significant trigger, and I'd describe this as structural rather than simple price movements. The US ending Bretton Woods must also have had a significant effect, but I can't honestly summarise that. In the UK the labour unions were much stronger in the 70s, and their expectations of next year's inflation fuelled very high wage increases (as Paul described for prices). I guess you could say Thatcher and Friedman solved that, but it took a long time and the cure was worse than the disease in my opinion. And left us with the casino economy and rabid financialisation to boot. I've been trying to find a detailed economic analysis of the 70s and its longer term effects as it seems to have been a pivotal period, though I was too engrossed in having fun at the time to notice much of it.
Kevin Davidson (Brooklyn)
I'm betting people will surge money into the economy and it will get better and better. Period.
AlfredD (Canada)
There will be inflation alright - but not everywhere. Prices of basic goods will remain mostly stable, but some things will see their price increase rapidly: company shares. The stimulus money will be captured and will drive up the stock market to new record highs, further pushing the divide between the haves and the have-nots. More and more, the best way to make money is not hard work - it's having money to begin with.
JL (Connecticut)
Businesses set prices to maximize profits. That's it. They don't decide to double prices absent an expectation that they will be able to sell their product at that price. Right now, there is plenty of excess (idle) productive capacity. Therefore, if demand jumps, businesses can simply engage that idle productive capacity and make more products to make more profits. If a business thinks that it can take advantage of the bump in demand to raise prices, there are competitors happy to take their spot in the market. And if that business decides to also increase wages at the same time? Sayonara! Now, if there comes a time when there isn't a lot of idle productive capacity in the economy... that's when you want to start worrying about inflation.
Suzanne Wheat (North Carolina)
I regularly shop at Walmart. I have noticed that prices have increased on many items. I have the feeling that prices were increased because Walmart wanted to take advantage of adverse conditions. It's not as if butter is in short supply. Inflation happens because sellers see an opportunity to earn more. consumers will buy butter because they want it. With so many unemployed and homeless it's truly bizarre that companies take advantage of a crisis to make living so much more difficult. Inflation today happens because companies choose to make it happen. their greed knows no boundaries.
Ozark Ork (Darkest Arkansas)
@Suzanne Wheat The Financial "Interests" and regulatory capture of our government are the source of many of our social problems. They have made it OK to short sheet the workers, and this is the #1 reason to vote Democratic until we have somehow unwound those factors from our society. Unless you think it is OK to leave Americans to freeze on the streets of our cities, which seems to be the operative principal of the Republicans.
Rogan Thompquist (Paso Robles, CA)
This is a consistent Krugman message and I totally agreed with it in 2009. And I am agreement that the Democrats are now doing the intelligent thing moving forward. Hopefully, this is the beginning of a post-Neoliberalism economy where the income of the bottom two thirds of American benefits. But how this plays out in terms of inflation may be unpredictable. Covid 19 has changed so much of our current world. The Fed has stuffed money into the economy, but money velocity is slow and money investment has largely been placed in trusted (rent paying) capital assets. Our relation with China is changing. The world is warming. Technology is changing ever faster. We are in for some big changes ahead. Inflation is only one factor we should care about. I appreciate Krugman keeping the threat of inflation in prospective, and not letting it control the conversation.
Max (Hanover, NH)
Sometimes inflation is fast-moving money in a slow-motion financial panic. This will be one of those times.
C (New York, N.Y.)
Unfortunately Mr Krugman only knows how to fight the last war, and also stumbled upon the truth without realizing what he said. Let's take a moment to review. He writes: "In such an economy, a company setting its prices for the next year will do so taking into account the likelihood that everyone else’s prices — the prices charged by competitors, the costs of raw materials, the wages offered by rival employers — will be going up over time." There seems to some admission, that companies set prices. They do it by fiat. They control the means of production. They don't worry about competitors since the small oligopoly needn't so much as give a wink, and like a contract bridge player, magically there prices move in lock step. There is no supply demand curve, there is just the demand that CEOs supply steadily increasing profits to themselves, so their stock options rise in value. This needs to stop, but Krugman is clueless. Next, no mention of stagflation real cause, oil price shocks. Thank goodness the West and Japan are no longer dependent on unstable Mideast oil regimes for a large portion of their energy needs. Oh wait. Finally, why are there no economists to see if inflation comes, as it surely would if labor regained power, prompting big business to counter real wage hikes with even larger price hikes, to maintain profits and then some, why is there no one who will come up with a plan to counter inflation that doesn't involve strangulation of the economy by the Fed.
Charles Becker (Novato, CA)
@C, Krugman may be wrong, but he certainly isn't clueless. Although I elsewhere argue that his analysis is wrong, compared to the explanation you present he deserves a Nobel Prize. Oh, wait, he already has one of those....
ExileFromNJ (Maricopa County AZ)
To me it looks like this spending is spread out over many parts of the economy. Would this help to keep inflation from creeping up? I'm banking on Paul's forecast. But hey, too late now, the train has left the station! Buy the ticket and take the ride.
USAF SERE (Washington)
There is no greater absence of reason, or for that matter basic arithmetic when Republicans speak about the economy. They repeatedly allow the creation of bubbles via deregulation, then wave their hands about crying for a bailout. S&L crisis, MBS Crisis, auto sector blah blah. Repeated tax cuts for the wealthy and corporations. Then Covid 19 comes (thanks to Republicans failing to manage it) and how exactly did Wall Street and corporations fare ? According to the stock market, they cashed in. President Biden puts money directly into the average person's pocket and the Republican lose their minds. Who cares about inflation when you can't put groceries on the table or make your rent. I'll take my chances.
Suzanne Wheat (North Carolina)
@USAF SERE Well said!
True Believer (Capitola, CA)
@USAF SERE Larry Summers cares.
That's What She Said (The West)
What I don’t get is how so many states can keep minimum wage at $7.25 basically - in the barn —when cost of living inflation - the horse - has bolted long ago and will now never be caught Unconscionable
Charles Becker (Novato, CA)
@That's What She Said, Because nobody (2.1%*) works for the minimum wage. The minimum wage is there for high school students working at the ice cream parlor. People with any skills whatsoever and a halfway decent work record either earn way more than $7.25/hr (or $15/hr) or they just aren't looking in the right places..
sj (kcmo)
@Charles Becker, I recently read the Mysterious Affair at Olivetti and in it, the son of the founder of the Italian typewriter company Olivetti came to America in 1929 and was allowed to visit Ford auto manufacturing company and discovered then that Ford's workers were being paid $6+change/hour--in 1929! Today, I was informed by a Chevrolet auto manufacturing electrician that in the past, workers made full pay after six months and since 2009, new workers start at $15/hour and often don't make what used to be considered full pay until after ten years. AI will soon replace all of these smug professionals with business (accounting), medical, and legal degrees. The fastest-growing job sectors are in the <$20/hour range for all of those obsolete-skilled former professionals.
hen3ry (Westchester, NY)
@Charles Becker, oh really? The minimum wage was meant to provide a worker with enough money to have a decent life. That included supporting a family. And a great many minimum wage earners are not teens. As for the other part of your statement no, plenty of people with good skills cannot find jobs in their fields. Why? Ageism, long term unemployment, inability to move to where the jobs are. If you work for a living you ought be earning enough to have a decent life. Not an upper crust life but a decent one where you can pay your bills, put food on the table, and even save.
Len Charlap (Princeton NJ)
What the many articles about inflation never mention is that that there are THREE factors that affect prices. Sure, if the federal gov (which can create as much money as it wants out of thin air) adds money to the economy and the other other 2 factors STAY THE SAME, prices will rise. What are these other factors? One is how much stuff, goods and services we produce. The more stuff we produce the LOWER prices will be. What usually happens when the gov adds money responsibly, when it gets money to the people who need it and will spend it is that, by the miracle of capitalism, businesses expand to produce more stuff. This negates the affect of the addition of money. When doesn't this work? What causes prices to get too high? It's when the gov spends money into a CONSTRAINED economy. That's an economy that for one reason or another cannot produce more stuff. Maybe there is an oil embargo and a shortage of livestock feed. Maybe the country has just lost a war and hasn't enough arable land or money to buy food to feed its people. The other factor is whether the money the gov adds is being used. If the money is sitting in the basements of the Rich or chasing itself in the stock market, it affects prices very little. This explains why Trump's tax cut did not cause any inflation. "So much of our economic issues could be solved if people understood that the US cannot run out of money, and how hard it is to cause hyper-inflation from government spending alone." - Max from Boston
R. Anderson (South Carolina)
@Len Charlap Good points and another justification for carefully targeted govt. assistance and means testing. Many receiving stimmies will sock them away. But then the argument from the better well off might be, hey, but my higher taxes are paying for these benefits so why shouldn't I get something from them: social security, medicare subsidies etc. I would like to see closing of tax loopholes for all including corporations.
TK Sung (SF)
Economists should talk to me, the savviest shopper ever lived, for anecdotal evidence. When I need to buy something, I patiently wait for weeks or months for a bargain. Lately however, bargains have been few and far in between. A dozen items have been sitting on my shopping list for months and I'm yet to fulfill them. I finally surrendered and purchased one of them, a kitchen cart, at almost twice the price I paid 4 years ago. I didn't have this kind of problem in 2010. Sure, it could be a covid-induced anomaly. But economists are predicting an explosion of demand for the next year or two and I don't see bargains coming my way any time soon. So I plan to give up on the rest of the purchases and put my money on inflation protected short term funds instead.
Tom (Gawronski)
What, pay tell, is a short term inflation protected fund?
sj (kcmo)
@Tom, Treasury Inflation-Protected Securities (read Boglehead's Guide to Investing). I inquired about them for my mom to balance her investments and at the time in 2018 of Trump's tax cuts, it sounded ridiculous. Also, I don't think the financial advisor's outfit offered them, as a complete waste of their time for little-to-no compensation for the outfit.
Ken Gallant (Sequim, WA)
One real problem is the need to readjust the return to labor vs the return to capital. The reason that we have had growing inequality is the inability of workers to negotiate for a fair share of this return. But Krugman is also right that inflation responds to things like higher wages. That means that we probably need to put up with it for a while anyway.
RoyanRannedos (Utah)
I have to wonder how this connects to the inflationary pressure between states. As Conor Dougherty wrote Feb. 12, states with a lower cost of living/housing are experiencing a flood of people from cities and states with a higher cost of living. It works out that this tends to be a migration from blue states to red states, but now that the remote work genie is out of the bottle, location isn't much of an issue for work-from-anywhere organizations. So on the ground in a red state getting an influx of blue state housing money, conservatives start seeing themselves priced out of their usual standard of living, where their kids can't afford a house in the most rural part of their home state. These differences might be small potatoes when averaged nationally, but they sure feel like inflation on the ground. Pair these changes with a fluctuation in non-sticky prices like gasoline, and people start seeing the specter of inflation right around the corner.
Ozark Ork (Darkest Arkansas)
@RoyanRannedos The Californicators don't really want to move to places like Pine Bluff, Arkansas or Paradise, California; The younger ones want University Towns, with their arts and bars, which already have housing problems. The ones with families, well, they are moving to the exurban suburbs with good schools. Read an article recently about housing pricing problems in Boise, Idaho; The rest of the state? Fugedaboutit. Same with Arkansas (or any Red state) forget anyplace more than ten miles off the interstate, where you pretty much revert to the state mean. In Arkansas, Northwest Arkansas (Walmart Home Office Land) keeps the state above Mississippi in the league tables.
USAF SERE (Washington)
@RoyanRannedos well on the bright side, conservative gerrymandering will be defeated.
Ben (NYC)
I never panic. Gas will go up because of simple economics - supply and demand. No one was driving in 2020 and gas usage went down, so did prices. Now more people are starting to drive and more gas is being used - hence, gas prices go up. This has been the pattern for decades and decades. But the GOP will blame Biden - of course they will. As for inflation, I have no control over it, whatever happens happens. So why am I going to get stressed over something I have no control over? Paul - your article could be summed up with the simple sentence above.
tanstaafl (Houston)
I appreciate that you are discussing economics for a change, your area of actual expertise. But I don't see the need to demonize those who think that the most recent stimulus package is too large--people like Lawrence Summers, who worked for President Obama. Unlike the 2010-11 period when the economy was weak and suffering from a debt overhang, this time around the U.S. economy is prepared to boom if Covid can be tamed. Also this time around, the size of both the monetary and fiscal stimuli are much much larger. It is not unreasonable to expect inflationary pressures--certainly it's not a sign of some sort of derangement or evil nature of those who believe so.
USAF SERE (Washington)
@tanstaafl The support package was smaller than the Republican tax cut. Also who cared what Larry Summers thinks. He was behind some of the exact wrong decisions that extended the Bush financial crisis. That gent has failed upward his whole career. Remember this; in the absence of spending and borrowing something has to step in, and step in large. The only entity capable is the Fed.
RJB (Northern Virginia)
@tanstaafl Paul Krugman is not demonizing Larry Summers or anyone else, he is making a case that their concerns are overblown. He did not say anything derogatory about them or their positions. Have you ever listened to Mr. Summers when asked about this issue? He states that he is concerned that there is a "possibility" of excess inflation. The operative word is 'possibility'. Mr. Summers also agrees that the Obama stimulus package was too small and the economy didn't rebound as fast as it could or should in the years after it. This package is intended to correct that mistake. There is evidence that supports the position that there is enough slack in the economy that the COVID relief package should stimulate growth without causing excess inflation. Paul K. is just asking that anyone wait and see how things play out before crying that the sky is falling.
Sandy Olson (Maine)
The problem is that in the real world there already is inflation. Food costs more. Clothes cost more. Prescriptions, generics, cost more. This other thing we call inflation, how relevant is it?
Blue Moon (Old Pueblo)
"... it’s certainly possible that the American Rescue Plan will turn out, in retrospect, to have been too much of a good thing. But don’t let the usual suspects seize on a few months’ inflation data as evidence of looming disaster." We have just ended four years where the major legislative "accomplishments" were more tax cuts for the wealthy and corporations and a nearly successful attempt to repeal the ACA (that is, to withdraw health insurance from tens of millions of Americans). This current relief package (along with newly reported additional spending recommendations) will move the country forward, with ordinary Americans in mind - front and center. Isn't it worth accepting a little risk to do that? Stagflation appears to be a minimal threat. But America stagnating because we are too timid to do what is necessary to provide for our own basic needs and to move ourselves forward in the world? Wouldn't that be the greatest risk of all?
Look Ahead (WA)
@Blue Moon The main "accomplishment" of the 2017 Trump tax cuts was to fund a lot of stock buybacks rather than to invest the corporate tax savings in future growth. It wasn't for a lack of opportunities, including renewable energy, electric vehicles and storage, microchip production and other areas where the the US has fallen behind in the last 4 years. Of 140 odd new megabattery factories under construction worlswide, about 107 of them are in China and less than a dozen in the US. One problem was that business leaders didn't know what Trump was going to do next, would it be one Federal regulation or 50 state regulations, more tariffs and retaliatory tariffs, kill NAFTA, no make it better, pandemic shutdown or pandemic hoax, what's a vaccine plan? By the end of the Trump era, capped by the US Capitol riots, the US economy looked like the gold plated Trump plane, one engine missing and a wing damaged from a ground collision. The national debt is bad if it was caused by endless wars or funding stock buybacks, good if it was invested in infrastructure to create future growth and widespread prosperity.
Metastasis (Texas)
@Blue Moon : Too late. The US has already stagnated under Republicans and Neo-Liberal Democrats. Remember how the US rode the computer boom? We led the way on that, and vast wealth accumulated in the US Yeah, well renewable energy will dwarf that. And we missed the boat on it while paying trillions for oil-based wars in the Mideast/Persia and having progress in that arena blocked by politicians bought by Big Fossil Fuels. Watch China lead the world on this. Everybody knew it was going to happen, but they were the ones who acted on it while the US was mired in corporate corruption of our government.
Rduane (va)
@Blue Moon Oh, and don’t forget the seditious riot the Republicans and Trump pulled off. That was another major accomplishment!
M Ford (USA)
We have no way of avoiding higher inflation. Interest rates bottomed out and are now going up. Things will change. But the Democrats aren't seeing a public backlash for sparking inflation. It is premature to run a damage control, scapegoat and propaganda campaign at this time. By launching a preemptive attack, the Democrats start the very war they they claim they are trying to avoid.
hen3ry (Westchester, NY)
Thank you for your explanation. There is one area that has always bothered me even though I understand the difference between the normal fluctuations and the core measure of prices. Why does there continue to be such a mismatch between the cost of living and our salaries? This problem has been in existence since the mid 1970s. The minimum wage, even if it's raised to $15/hour, is still too low considering the actual cost of living in most areas of the USA. There are other areas where the cost of living has increased but it's been discounted. The size of many foods we buy has decreased dramatically. One example is a container of juice. A number of years ago the standard size was 64 oz. Now it's down to 54 or 52 ounces. The prices however are the same as they were for the 64 ounce size. It may not be inflation as economists define it but it does hurt our wallets. Too many things have become costly for working Americans to easily afford them. We pay taxes yet we don't get as much as we should from them. This is because of the tax break mentality in DC and statehouses but no one seems to make that connection. In other words, when we need the money it's not there. The pandemic induced economic crisis of the past year should have shown all of us what taxes are for. Rainy days don't need to turn to tsunamis if we save our tax money and social programs wisely. 3/22/2021 7:40pm first submit
Richard Genz (Asheville NC)
@hen3ry The St. Louis Fed reports: Labor compensation was 65% of GDP in 1970. By 2019, labor's share had fallen to 60%.
Rima Regas (SoCal)
How not to panic about inflation into short sentences: 1. Think about all of the things government should’ve done both at the local and national level just over the past 15 years. 2. Think about how much corporations have paid in taxes just over the past 10 years? Those pricing increases you’ve been seeing at the stores? Those are not inflation. They are price gouging. With as little investment as this nation has done for itself just over this past decade, we are a long way off from the kind of inflation everyone is warning about. For our future and out of our children, we must invest. We have a lot of catching up to do.
hen3ry (Westchester, NY)
@Rima Regas, yes. And think of what should have been done and wasn't because our politicians were giving tax breaks to entities that had no need of them. What's even worse is that the companies that got tax breaks didn't bring any real benefits to the areas they got them from. They didn't hire the local people. They didn't stay around long enough for a return on the investment the areas may have made in roads, etc. They got something for nothing. We're paying for this indulgence. People in NYC were upset that Amazon decided not to come in. Amazon, in all likelihood, never intended to. They used the demands NYC made as their reason but it wasn't. It's a tactic used by companies the world over. We'd do better giving breaks to small local businesses that we patronize that aren't chains or operating under the aegis of a large corporation. Local businesses care about the town. Big corporations take advantage and often leave behind a mess. If corporations cared about the communities they "live" in they'd try to help out by paying their share of the taxes. They'd invest in the community. They'd take care of the environment where they locate their manufacturing facilities. They'd pay living wages. And they'd do it because it's the moral thing to do. Of course when the bottom line is all that matters morals don't.
Frank (NYC)
@hen3ry A tax break is not giving money to people. It is letting people keep their money away from the gaping of wasteful government spending. I would like to see the government actually do more with less before it comes to siphon yet more money out of my wallet. If that means fewer services, so be it.
hen3ry (Westchester, NY)
@Frank it means a failing infrastructure. It means less basic scientific research. It means a government that is unable to do its job by and for its citizens. If you prefer that you are opting for life in a country that wastes lives and talent. Government exists to do what we as individuals or part of families cannot do. I don’t want to live in a state of anarchy. Good government is not cheap. But the alternative isn’t cheap either. It’s wasteful and costs lives.
Red Sox, ‘04, ‘07, ‘13, ‘18 (Boston)
Republicans traffic in three areas: fear; hate; and misinformation. They get votes via fear and hate; these are fed by misinformation. Their coming dirge about inflation will simply not be true. The economy is improving and will get even better as the year progresses because of the money that was made available to desperate Americans who will return it into the nation's economic bloodstream as soon as they get it. This should, if form holds, create employment situations that, because of the pandemic, will perhaps not be as robust or rewarding as pre-Covid; but with a new $3-trillion plan on the drawing board by the new president, an infrastructure package could go a long way toward torpedoing the usual Republican fairy tales of Democratic economic mismanagement. Republicans have been arguing for decades that government spending will "debase the currency," all the while forgetting that it is the taxpayers' money that ends up in the (offshore) accounts of the rich and shameless; they are wealthy enough that inflation doesn't bother them at all, and I don't want to hear anything about how Republicans are so concerned about Middle America and Main Street that they just can't sleep at night at the thought of money circulating where it will do the most good. I am no economist but I understand enough to know that economies are always fluid and never fixed. All Republicans have are, as I said above, negative opinions about government and how to divert public money to private use.
Liber (NY)
@Red Sox, ‘04, ‘07, ‘13, ‘18 : A number of salient points.To which I would add as so grandly expressed by Professor Paul Krugman,keep in mind,two types of inflation.
Steve (Sonora, CA)
@Red Sox, ‘04, ‘07, ‘13, ‘18 - It is not government -spending- that debases the currency, it is government -borrowing-, And in their frenzy to avoid taxes, the Republican recipe is to borrow, borrow, borrow. And even then, not all borrowing is the same. It is one thing to borrow to pay the grocery bill, and another to borrow to cover the cost of a home (ie.e mortgage). It is one thing to borrow to finance tax cuts, and another to borrow to finance the construction of highways, dams,power gird ... (i.e. infrastructure). The party of "fiscal responsibility" has long since become the party of "economic idiocy."
Robin (Manawatu New Zealand)
@Red Sox, ‘04, ‘07, ‘13, ‘18 Trafficking in fear, hate and misinformation... I really liked that. So true.
Norm Spier (Northampton, MA)
If not to worry about inflation, we should worry that all the spending (COVID bills with talk of future spending and tax increases) will not be used effectively, and not fix our problems. E.g., on health insurance, the characterization of the ACA in Jonathan Cohn's wonderful recent book "The Ten Year War" on the history of the ACA and other health reform efforts: "The ACA is a highly flawed, distressingly compromised, woefully incomplete attempt to establish a basic right that already exists in every other developed nation" remains true. This is despite a temporary fix of the 400% FPL "subsidy cliff" in the COVID bill, which did result, pre-fix, in some people needing to pay 25% or more of income for premiums. (Reduced to 8.5%.) There remain unaffordable copays commonly to $14,000/ year per family. There remains another big flaw called the "family glitch". Perhaps largest: Above 138% Fed. Pov. Lvl. (FPL), you get real on-exchange insurance, with extreme subsidies, often 100%. Dip below 138% of FPL, even for a short period like a month, and you get expanded Medicaid. In at least 12 states, including blue MA, MD, and NJ, what you get is subject to estate recovery for people 55-64. It can be recovery of all bills paid out--there is no insurance at all in that case! What kind of a goofy thing? My guess: we will fail to fix our problems. (On the last issue, see the Wikipedia article on Medicaid estate recovery. You can verify the assertions with the refs there.)
White Buffalo (SE PA)
@Norm Spier I fail to see why estate recovery of expenditures under Medicaid that were not paid by the recipient is a bad thing. When the recipient needed help, and could not afford it, the recipient had access to that help through Medicaid. Once the recipient died, and no longer needed the help, the recipient's estate pays back the monies Medicaid expended on the recipient's behalf. Yes, it is arguably not insurance, but the recipient never had any insurance because the recipient never paid any premiums because the recipient could not afford to. So instead this is like a loan to the recipient that does not need to be paid back during the recipient's life time, when paying it back could lower the recipient's standard of living and would be a hardship, but only after the recipient's death, when it could not possibly hurt the recipient. And you have a problem with that why? Free medical care is not free. It is paid for by someone else, taxpayers. Making the program more sustainable by relieving some of the taxpayer's burden is a good thing, not a bad thing.
Norm Spier (Northampton, MA)
@White Buffalo I understand your argument, but: 1)Is your position thought through in depth, by observing these inconsistencies?: a)Just above 138% Fed. Pov. Lev. (FPL), to 150%, on-exchange coverage is now free real insurance--not a loan. Above 150% FPL and now well beyond 400% FPL, coverage is 90% subsidized, etc., even hitting 60% subsidized commonly over 400% FPL. Is your policy recommendation that bills paid out by these must be estate recovered--at least same proportion as subsidy proportion? b)Medicare (people over 65) is substantially subsidized by general tax revenue, and as well, lower income people pay lower payroll taxes subsidized by higher-income people. Do you recommend Medicare bills paid out be estate recovered as well? c)Public education through high-school 100% subsidized. State colleges often 50% subsidized. Demand the money back from estates as well? 2)The "sustainability" from recovery on ordinary medical like ACA expanded Medicaid (not long-term-care) is relatively small. Many people who get it actually are low in assets. But large chunks of estates can be taken from people unaware of the recovery (thought it was insurance), or unable to afford unsubsidized on-exchange, when the contraption of the ACA gives a person with assets pausing work for a bit, unemployed, early-retired, self-employed w.o. contracts for a month an estate-recovered expanded Medicaid. 3)Rest of developed world gives all people real insurance. Could that be better?
Norm Spier (Northampton, MA)
@White Buffalo Sorry, I missed directly answering: "And you have a problem with that why?" A: Because I want the ACA to provide everyone with affordable real health insurance. Not a loan. (And am happy to have redistribution of income used to do that.) Noting the rest of the developed world does real insurance. They don't demand the money back at death for health-care bills. The U.S. does it now for many under the on-exchange part of the ACA (138% FPL up), and subsidized Medicare (for people 65+). The below-138% FPL group aged 55-64 only (whether usually low in income, or just dipping below temporarily, should not be worse treated.) Particularly with the complete bomb, which many states do, of no-insurance-at-all and making estates pay back all medical expenses paid out.
See also