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Economics

Hoe je de inflatie niet moet bestrijden

Jan 26, 2023 Joseph E. Stiglitz

NEW YORK – Ondanks gunstige cijfers is het nog te vroeg om te zeggen of de inflatie getemd is. Toch zijn er twee duidelijke lessen te trekken uit de recente prijsstijgingen.

In de eerste plaats waren de standaardmodellen van economen – vooral het dominante model dat ervan uitgaat dat de economie altijd in evenwicht is – in feite nutteloos. En in de tweede plaats zijn degenen die vol vertrouwen beweerden dat het vijf jaar pijn zou kosten om de inflatie uit het systeem te wringen, al weerlegd. De inflatie is drastisch gedaald: de seizoensgecorrigeerde consumentenprijsindex van december 2022 ligt slechts één procent boven die van juni.

Er is overweldigend bewijs dat de voornaamste bron van de inflatie pandemiegerelateerde aanbodschokken en verschuivingen in het vraagpatroon waren, niet een overmatige totale vraag, en zeker geen extra vraag die door pandemische uitgaven werd gecreëerd. Iedereen met enig vertrouwen in de markteconomie wist dat de aanbodproblemen uiteindelijk zouden worden opgelost, maar niemand kon precies weten wanneer.

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Joseph E. Stiglitz

Writing for PS since 2001
322 Commentaries

Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, is a former chief economist of the World Bank (1997-2000), chair of the US President’s Council of Economic Advisers, and co-chair of the High-Level Commission on Carbon Prices. He is a member of the Independent Commission for the Reform of International Corporate Taxation and was lead author of the 1995 IPCC Climate Assessment.

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0 Comments on this paragraph, 9 Comments on this article

peter yeoh Feb 1, 2023

Maybe it is more prudent to err on the side of caution.
- chris9059 chris9059 Feb 4, 2023
  
  Caution in whose interests? Both unnecessary hikes and the failure to make necessary hikes have costs, in whose interests should we be cautious?
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Joseph Rhea Jan 30, 2023

n/a
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Ben Leet Jan 30, 2023

Since June 2022, 6 months ago, the CPI as reported by the BLS has been 0.16%, which annualizes to 0.32%. -- https://www.bls.gov/cpi/data.htm -- June level was 296.311 and December level was 296.797, up 0.16. The seasonally adjusted rate is up 1.9% annuallized. The 12 month rate is up 6.4%.
Much of inflation was driven by corporate price increases, or gratuitous price-gouging. The Federal Reserve graph shows "profits after tax", in Q1 2020 they were $1.034 trillion, in Q2 2022 they were $2.107 trillion. That's an increase of 103%. -- https://fred.stlouisfed.org/series/NFCPATAX -- How does one account for higher profits in a high inflation environment? Inflated higher input costs result is lower profits, it's quite obvious. Corporations passed on their supply side expenses and added additional mark-ups. At INET Economics, Institute for New Economic Thinking, an interview with professor Hal Singer spells this out. Also Roosevelt Institute publishes a study by Mike Konczal, "Prices, Profits and Power" spelling out the rise in mark-ups. And Josh Bivens at the EPI.org also claims that 54% of inflation was caused by corporate price hikes. Matt Stoller, an expert on anti-trust issues, also makes a case for price hikes. I wonder what Stiglitz says about these claims. He uses a very nebulous term "shifts in patterns of demand." What is that? Some one should explain the Fed's graph, and then explain how those very high profits are not implicated in inflation pressures. My blog: http://benL88.blogspot.com
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rgibbins Jan 29, 2023

I have no real issue with this lightweight paper, but I wonder why he is still given such an airing when overall his record is horrible. Argentina under his guidance was a total ideologically driven policy error, leading to 90 pct inflation and the fleeing of his student finance minister.
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Ian Maitland Jan 29, 2023

More recidivism from the inflation-denier!

Back in 2021, Professor Stiglitz was one of the most outspoken members of Team Transitory. He repeatedly dismissed inflation as a paper tiger (a “bogeyman that is more fantasy than real threat nowadays” (Feb. 2021). Worry about inflation today is "certainly premature" and "totally unnecessary” (March 30, 2021). “Whether those peddling inflation fears are pursuing their own agenda or simply jumping the gun, they should not be heeded” (June 7, 2021). “There’s been a lot of fear-mongering concerning inflation” (July 28, 2021)).

Ironically, Stiglitz's inflation-denialism is itself partly to blame for the present debacle, and has limited the Fed's room for maneuver. Today the Fed not only has to fight inflation but it has to fight to restore its credibility by proving that it is serious about "whipping inflation now."

It's not just about about economic analysis. The public remains skeptical that the Fed has its heart in the fight. If the Fed were to heed Stiglitz's advice, that would be seen as weakness and inflation would reignite. All the ground that the Fed has clawed back from inflation would be lost and the butcher's bill for reclaiming it would have to be even higher.

Woofie's barking may not scare off planes flying over Stiglitz's house. But his master's promise of a free lunch may lead Americans to think that the Fed is about to run up a white flag in its war against inflation. And that belief may be self-fulfilling.
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Andrei Mocearov Jan 27, 2023

Supply-side disruptions and shifts in the pattern of demand could explain a small part of inflation, but for sure not the amplitude, especially of the energy prices, which reached at unbelievable levels, more than 15 times higher than at the beginning of 2021. The cause of this amplitude should be found in other explanation. I suspect huge speculative operations on energy markets, commercial side, but notably on derivative financial markets linked with energy products. Markets which have been wrongly designed just to allow such speculations.
- Paul Friesen Jan 30, 2023
  
  It seems to me that supply and demand disruptions could easily account for oil price fluctuations if you consider that Russian supply was being removed just as demand was recovering from covid. Speculation could affect futures markets, but for it to affect the actual price of real oil in the present, it would somehow need to remove present supply. you would need to believe that speculators were somehow taking oil out of the market and storing it someplace, or actually reducing the amount produced.
  
  I don't know of any indication that either of those things was happening.
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Dawood Mamoon Jan 27, 2023

Dear Professor Stiglitz, I think the only possible rational and the one that is significant to lead Fed continue with raising interest rates are that the reputation of Fed would be at stake if it doesnot allow its propagated goal of 2 percent inflation rate and instead having it remain at 3 to 4 percent. You are right to suggest that it should not matter whether inflation is 2 percent or it is 4 percent as a matter of inflation targeting goal as its effect on consumer markets and production profile of the US would be same. Nevertheless Fed it seems is risk averse towards its inflation targeting goals meaning the current policy to continue with high interest rates are in effect should lead to the goal of 2 percent avoiding any risk of US economy settling down at higher inflation levels in coming years. The historic obsession to avoid high inflation rates do benefit the average American through price stabilisation. The salaries of most of the Americans are static and thereby stable inflation ensures healthy purchasing power and thereby robust consumer demand for all kinds of consumption goods that all include a tech savvy and modern lifestyle. Being one of the most modern economies, American citizens in its average mode doesnot have to worry about food, shelter and clothing. Although shelter part would be more complicated than transport, health and education since it is a necessity and more of a basic right like food and clothing and most of the ressources to have an ownership of a home depends upon mortgage and the interest rates attached to it. In that respect higher interest rates are detrimental to consumer affordability to decent housing. However assuming it is generally a more convenient provision to the Americans expecting lower economic classes to accept compromise on quality of housing and their independence thereof by living with more occupants by sharing housing, low inflation would guarantee a win win situation for all Americans that are poorer or belong to middle class as their relatively static salaries correpond well to their purchasing power to enjoy tech savvy amneties with the only possibility of sharing it in cases the amneties are not meant for individual consumption.

Your other point that Fed is risking a mild recession that would lead to fall in exports of developing countries to the US whereas US itself is building most of the technology supply chains that exist in Europe, China and East Asia in technology goods would not be a matter of great concern to either Fed or the US government. Yes one aspect that makes it an American concern if falling exports to US make these regions look elsewhere for cooperation or between themselves would decrease the influence of US in decision making that pertains to the matters of international relation and US foreign policy would be far less effective. Economic influence derives the foreign policy. A global recession that may result from falling US imports from other countries may further isolate the US, but as argued above may not be bad for an American citizen. Though my fondness with the US and esspecially with the American people and their values is immense, I donot think that it has ussually been an American concern as a matter of deciding its monetary policy as what effects it would have on global economy and maybe rightly so. The rest of the world in question should adjust to the new outcome if it may arise out of their falling exports to the US. Nevertheless, it is a very long argument since, US assists developing countries through necessary Aid and provides much of the financial impetus to international lending institutions as well as benefit these countries through much needed intellectual assistance through academics and practioners like yourself. However self sufficiency is the best argument in question. India is one of the best examples in addition to China and more so because India is a democracy and has mostly contributed to its policy structure independently accruing un precendended economic prosperity. The Intellectual word is out there in books and papers and talks of people like you and exchange of knowledge in many cases within the developing countries to achieve self sufficiancy like in case of India and China. But the argument of dependency suggests that it may not be wise for foeign policy pundits in developed countries to allow this though I feel it is fundmentally flawed argument because the gospel for prosperity is same for every one and every where and it is to embrace democracy (only when is the real question), free media and freedom of speech, capitalism (Better to say productivism now following Professor Dani Rodrik) and multiculturalism.
And to conclude I shall just say that the power of your argument is in its simplicity as that is the inflation in US has been caused by supply chain distortions and the demand shock after and during the Pandemic. Pandemic gone coupled with Bidens multibillion Inflation Act reinvigorating the domestic supplychain and healthy growth in employment rates, the factors that caused inflation are addressed and there is no need to further pursue inflation lest the gains are lost and high interest rates would lead to fall in investments and shrink private sector contributions to the highly taxed regime adopted by President Biden. I simply agree Professor. :)
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