As people attempt to downplay the threat of inflation, for example, from the New York Times. . .
Soaring oil prices. Growing deficits. Supply-chain bottlenecks.
The headlines sound like the 1960s and '70s. But when it comes to inflation, economists say there are important differences between then and now.
With @jeannasmialek:https://t.co/KsGX6O95J0
— Ben Casselman (@bencasselman) July 8, 2021
Yet many inflation experts point out critical differences between this era and that one, from the decline of unionization to the ascent of globalization and shifting demographics, and say those discrepancies are part of the reason faster inflation is likely to be short-lived this time around. White House officials — including Brian Deese, Mr. Biden’s top economic adviser, who is 43 — say they expect price pressures to calm.
. . .the Biden administration did meet with former Clinton Treasury Secretary Lawrence Summers to discuss just how much we’re at risk from inflation:
Lawrence Summers meets with top Biden economic advisers amid inflation fears https://t.co/qWqg5vGEZ2
— Bloomberg (@business) July 14, 2021
In summary, we’re in a worse place today than in the 60s and 70s:
.@nytimes @bencasselman @jeannasmialek write interesting article stressing distinctions btw 1960s when inflation accelerated & present moment. In fact, I think most factors point to more cause for concern now than in 1966 when inflation accelerated 3-4 pts in 4 yrs. Consider this https://t.co/mJs8AVEu18
— Lawrence H. Summers (@LHSummers) July 14, 2021
Recommended
1/Then, the deficit was in range of 3 percent. Now the deficit is in the range of 15 percent.
— Lawrence H. Summers (@LHSummers) July 14, 2021
2/Then, nominal and real interest rates then were significantly positive and Fed has no big balance sheet. Now, nominal rates are essentially 0, real rates are negative and the Fed is growing its balance sheet at a rate of more than a trillion a year.
— Lawrence H. Summers (@LHSummers) July 14, 2021
3/Then, there was no saving overhang, no housing price boom and no major asset price inflation. Now, all three are present to an almost unprecedented degree.
— Lawrence H. Summers (@LHSummers) July 14, 2021
4/Then, because of the labor force and productivity growth, supply potential was growing at 3.5 percent. Now it’s less than 2.
— Lawrence H. Summers (@LHSummers) July 14, 2021
5/Then, there was no risk of import inflation because we had few imports and a fixed exchange rate. Now, we have a flexible exchange rate, huge external debts and much larger imports.
— Lawrence H. Summers (@LHSummers) July 14, 2021
6/Then the argument was that measured inflation would not accelerate too much from 2 percent. Now it is that inflation will substantially decelerate from 5 percent.
— Lawrence H. Summers (@LHSummers) July 14, 2021
The similarities between the 1960s and now are more political than economic: a deeply divided country with a progressive, experienced, legislatively ambitious President; economists blaming special factors for each worrying number; a socially ambitious Fed. pic.twitter.com/grJgixa8sg
— Lawrence H. Summers (@LHSummers) July 14, 2021
Gulp.
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