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‘Locking In’ Inflation: Revenge Of The Theories
Are central banks "locking in" above-target inflation?
You'd like to think not. And policymakers wo
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I think it’s important to acknowledge that we were staring down the barrel of another great depression due to the impact of the pandemic, and that erring on the side of too much helicopter money was a better move than risking the alternative. To your point, it’s easy in hindsight to see stimulus, both monetary and fiscal, might have been too much, especially given the supply constraints, but all things considered, the inflation we’ve experienced was likely worth ensuring that the economy didn’t completely fall apart (assuming that doesn’t still happen).
Agreed. A major problem with decision/policy making is that once a decision or policy has been made, time starts to pass and things change, never to be the same again. “This time” is always different. So once we decide something we can’t go back and see what would have happened if we had done something different that what we actually did. Second guessing is always futile. We can record what we did and what we think happened, but in a world as complex as the one we have, we won’t ever know all that really happened so using past information in the next decision will create new errors we can’t foresee. Just ask any pro golfer whose lost their swing or a baseball player whose gone 0 for his last 44 ABs.
If you think in terms of population biology, it is not unreasonable to think that inflation will be sticky. The resources that people need to live and thrive are becoming scarcer, in the face of an increasing population of humans. Relative scarcity of resources means those resources are more valuable. With increasing competition for resources, people will work harder to secure those resources, which results in greater conflict, in turn resulting in the need to spend a greater proportion of resources on defense (or aggression).