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Why Mainstream Economics Got Inflation Wrong

Leading economists' misdiagnosis of inflation in 2021-22 was the latest episode in a long-running series of failures, from not foreseeing the 2008 financial crisis to endorsing self-destructive austerity in the 2010s. Either mainstream economists need to re-examine their core beliefs, or the profession needs a new mainstream.

AUSTIN – In his November 7, 2023 New York Times newsletter, the economist Paul Krugman asks a good, albeit belated, question: Why did so many economists get the inflation outlook wrong? After all, the near-consensus among mainstream economists in recent years was that inflation would persist – and even accelerate – and that this justified substantial interest-rate hikes by the US Federal Reserve. Yet the quasi-inflation of 2021-22 proved transitory.