September 21, 2022 By Jay Bhattacharya and Mikko Packalen

Consumer inflation rate in the US has remained above 4% since April 2021, 5% since June 2021, and 8% since March 2022. This last month’s inflation report came in at 8.4%, above analysts’ forecasts, disappointing hopes that the inflation rate might start to subside.

A significant part of the current inflation is a rather obvious result of the massive covid relief and stimulus packages and the production and supply-chain disruptions caused by lockdowns and other covid restrictions

High inflation is forcing people to adjust their lifestyles and consumption patterns and accept a diminished standard of living. Consumers’ widespread and deep frustration has linked inflation with a stiff political cost. The public has good reasons to ask whether politicians should have pursued more prudent policy measures that would have avoided high inflation.

But politicians are not the only group facing questions about inflation. The economics profession is also under scrutiny. The one profession tasked with evaluating and informing the public about the pros and cons of different policies failed to raise the alarm about inflation.

Did economists not see inflation coming? Or, if inflation was not a surprise, why did economists not raise the alarm about the policies that led to it?

A D V E R T I S E M E N T

A D V E R T I S E M E N T

The answer to these questions is disheartening. Many in the economics profession did see that government policies of the last couple of years would result in high inflation. But most who saw it coming chose not to inform the public or raise the alarm until it was too late.

Jason Furman, former Chairman of President Obama’s council of economic advisors and current Harvard professor, commented recently that most academic economists have been ‘skeptical (mostly silently)’ of the stimulus packages. The high inflation we see today is partly the price of the economics profession’s self-censorship.

The economics profession’s determined silence on inflation is on display in regular surveys of top U.S. economists conducted by the Initiative on Global Markets of the University of Chicago School of Business. The initiative and surveys aim to help policymakers make informed decisions on ongoing policy debates.

None of the 35 surveys from January 2020 to May 2021 included questions about the potential inflationary impacts of covid restrictions and relief packages. Neither did the respondents bring up this concern in their free-form answers to the many survey questions about covid policy during this time.

The surveys only bring up inflation as a topic in June 2021, after the prospect of further lockdowns seemed remote. Congress had already approved the covid relief packages, and inflation had increased substantially.

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--Jayanta Bhattacharya, and Mikko Packalen

Post Date: 2022-09-21 08:17:40

Last Update: 2022-09-21 14:26:09