Janet Yellen is no stranger to answering questions about inflation.
And, as she’ll patiently remind you (where “you” means Larry Summers), she’s “spent many years studying inflation and worrying about inflation.”
So, if it’s inflation you want to talk about, Yellen is happy to have that discussion.
That said, I’d wager she’s already a bit weary of explaining to the general public why the US isn’t going to morph into Venezuela overnight just because she’s in the process of (literally) sending (almost) everyone (at least) $1,400.
When you’re Fed Chair, these discussions take place during events that nobody outside of financial markets cares about, or at post-FOMC press conferences, which were less frequent prior to Jerome Powell’s tenure. By contrast, Yellen’s new role as Treasury Secretary entails making the mainstream media rounds and dutifully showing up on the Sunday circuit.
In remarks to ABC’s “This Week,” Yellen characterized the risk of inflation as “small.”
“If we get back to full employment, could we see inflation surge?” George Stephanopoulos wondered. He cited Summers.
“I don’t think it’s a significant risk,” Yellen said. “And if it materializes, we’ll certainly monitor for it but we have tools to address it.”
Joe Biden of course signed his $1.9 trillion virus relief plan into law on Thursday after the Senate version passed the House. There was no Republican support in either chamber. Yellen’s Treasury immediately began working with the IRS to distribute direct payments.
On inflation, base effects will obviously play a role going forward, and PMI surveys do suggest rising input prices could soon be passed along to the consumer. Commodity prices are rising, and, disconcertingly, global food prices are up nine months in a row (figure below), conjuring uncomfortable memories of the Fed’s (indirect) role in stoking political tumult abroad a decade ago.
Finally, everyone knows Fed policy has, over the years, driven rampant asset price inflation which, in turn, exacerbated the wealth gap.
All of that said, I think it’s important for “regular” people (and I mean that as distinct from traders) to tune out the inflation cacophony, especially when it emanates from social media accounts of questionable repute, from pundits known to traffic in tabloid fodder, or from folks like Summers who, while respected in the field, is quite plainly just seeking attention in the twilight of his career. (How else could anyone possibly describe his behavior recently?)
Hyperinflation is not coming to America or the developed world. Or at least not anytime soon enough for you, personally, to be concerned about it.
Yes, the cost of healthcare and, for example, a college education, have skyrocketed in the US. But both of those examples are due largely to a broken system and perverse incentives. Ironically (in the context of the “money printing equals inflation” narrative), the best way to bring those costs down is probably for the government to simply fund universal health care and college tuition. Persisting in the increasingly absurd fantasy that the “free market” is the optimal model for healthcare provision has had disastrous consequences, while allowing twentysomethings to run up another trillion in student debt is an equally ridiculous (and wildly counterproductive) proposition.
The point is that inflation isn’t anywhere near the top of the worry list for the US coming out of the pandemic.
“Policymaking is about identifying and addressing risks,” Yellen told Stephanopoulos on Sunday. “The most significant risk we face is a workforce that’s scarred by a long period of unemployment. People being out of work and not being able to find jobs can have a permanent effect on their well-being.”
The idea that the risk of runaway inflation in the US somehow takes precedence over that or even that it should be equally weighted in policymakers’ decision calculus, is ludicrous. The chances of the US experiencing hyperinflation are tiny. By contrast, the odds of long-term unemployment remaining elevated and of the pandemic leaving an indelible mark on the economy are extremely high.
For those who insist on repeating that Yellen’s policies as Fed Chair were responsible for widening the very wealth gap she’s now trying to address and shrink, I’d ask this: What are you currently doing to address mistakes you’ve made or otherwise atone for suffering that you may have contributed to directly or indirectly?
H: A question. In regards to education, wouldn’t a better way to reduce tuition be to completely remove any federal government subsidies? I’m 51, went to a high quality state university in the late 1980s. Tuition was somewhat expensive, but reasonable. IIRC, tuition started exploding only after the federal government began making it much easier to get loans and grants. Colleges and Universities aren’t stupid. With an increased ease of funding for students, of course tuition went up. It’s the classic truism, when you subsidize something, you get more of it. Tuition subsidies led to more tuition. That, and the now luxury nature of many Colleges and Universities created craziness on the cost side.
I’m not against government paying for two-year degrees at community colleges. The USA community college system is a real gem that great work with millions of people. What worries more is that the government will completely screw it up as they do many things in which they have a monopoly with no accountability. Perhaps if it was a simple as a voucher for use at a community college. Even then, the same problem of tuition increases may exist.
Even with my strong right-leaning perspective, I agree that the free-market has failed on the health care front.
https://www.nber.org/system/files/chapters/c13711/c13711.pdf
This paper shows that it’s possible to explain about 90% of the increase in college tuition through exploding demand, typically mediated by increase availability of loans.
And since 2010, the end date of the study, college enrollment has stagnated and even dropped over the past decade. And yet tuition continues to rise.
I agree with anyone, including Yellen that inflation is a non-issue, within the greater context of pandemic recovery. The greater long-term threat is the restructuring of society and what that implies for millions of workers who will be either displaced or discarded by various forms of efficient technologies.
A small blip of interest rate jawboning isn’t going to matter to millions of older workers that will be weaned off the the stimulus teats, only to find that employers no longer want or need them. Retraining an older worker or an unwanted person is essentially a nice thought, but the reality of a 64 year old person with a cool new diploma from an online college connecting to a nice new job, is a pipe dream. Community colleges certainly will seek to sell that dream, because they thrive on that kinda hope and hopelessness.
In the pandemic disruption, stimulus has been doled out far different that the GFC, in terms of helping out the average person, versus just giving everything to banks — but how this plays out long term is unknown. Summers apparently thinks wages are about to skyrocket and act like inflationary jet fuel, but I think he has that totally backwards, I think you see wage stagnation continue, with less labor participation and greater labor efficiency by fewer people. AS the pandemic fades, probably next year, disinflation will be a greater concern as all the efficient giants carve out new ways to decrease prices. I assume that post pandemic, we’ll see more of a supply glut than our recent era of shortages. Once capacity rockets higher and output increases, that new supply isn’t likely to sell off if it’s over-priced.
Furthermore, it seems like the stimulus funds are being burned up pretty fast by those that are unemployed, so as people are weaned off financial heroin, chances are good that unemployed people will be forced to return to crap jobs, or drop out of the workforce — and they won’t be consuming as much on tighter budgets. In 3 months, hopefully, the virus variant won’t be crazy bad (it’s possible) and in 6 months if the vaccines seem to be gaining ground, people will be re-thinking what normal means, but I seriously doubt inflation will be a primary fear!
A recent trip to FRED shows an interesting relationship between:
Households and Nonprofit Organizations; Personal Consumption Expenditures, Consumer Durable Goods, Flow, Millions of Dollars, Seasonally Adjusted (BOGZ1FA155011001Q)
and
Personal saving as a percentage of disposable personal income, Percent, Seasonally Adjusted Annual Rate (A072RC1Q156SBEA)
https://fred.stlouisfed.org/graph/?g=BXLl
The way we measure inflation is broken… it does not reflect a real general rise in prices when housing accounts for 20-50% of households
TBH, Bernanke and Yellen did what they could as Fed Chairs. It wasn’t their fault the fiscal side of things didn’t work.
Put it another way – if Ben and Janet had either hiked rates or launch QT, we may have experienced less wealth inequality… but also a lot more pain for the bottom 20% of society. As they say, wealth is relative but hunger is absolute…
When M2V starts to rise significantly,worry. Right now it is under a mattress. Add another Zero to the checks and then maybe,only maybe.
Just as all other developed countries have at least a basic public healthcare system, these countries generally also have a system of selecting students for university attendance–not everybody gets to go to uni. So in France or Germany, you get a subsidized college education–if you’re a good enough student to make the cut. If not, then you go somewhere else. It helps to have a high school system that actually prepares students for life, and has a strong occupational track. Although college is expensive in the US, it is readily available to just about anybody that wants to go. Probably a majority of jobs don’t actually require a college education–but they do often require someone to be literate, with good work habits. Because there are so many college graduates, employers can demand that their applicants possess a college degree–just as a filter, because they can, and because it crudely does select for people who have ambition and can complete something. And yet you hear that manufacturers in the US are having a hard time finding qualified labor. Community colleges should be filling this gap, but the gap apparently remains. In the US, both healthcare and education are effectively industries, and we depend on them for employment, rather than using them to support the productivity and welfare of the citizens who are engaged in other productive work. This is not to diminish the great influence and research output of our universities–but the system could be so much better.