Saturday, November 27

United States: Let inflation not harm our future | Business


A girl brushes her teeth in Athens, Georgia, USA.
A girl brushes her teeth in Athens, Georgia, USA.MoMo Productions / Getty Images

The lesson conveyed by the consumer price report published last Wednesday depends, to a large extent, on the opinion of each one. The Transitional Team – a phrase borrowed from economic analyst George Pearkes – was encouraged by the fact that July inflation was considerably lower than June. That is, to those of us who argue that recent price increases reflect temporary shocks that emerge as we recover from the pandemic and not a core inflation problem – a group that includes White House economists, many progressives, and a server – the We found the report reassuring.

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Other reasonable economists have been less optimistic, pointing out that inflation remains high, warning us that we could soon see significant increases in rents, which weigh heavily on the Consumer Price Index. And I admit there is a chance that above-normal inflation turns out to be persistent enough that the Federal Reserve wants to tighten monetary policy earlier than expected. I don’t think it’s going to happen, but I don’t trust this opinion enough to rule out the possibility.

Even if inflation is a bigger problem than the Biden administration or other like-minded economists think, what repercussions would it have, other than monetary policy? Specifically, is inflation risk a reason for Democrats to downgrade their plans to invest in America’s future?

No, no, and 3.5 billion times, no.

Much of the media coverage of the budget resolution recently passed by the Senate by votes subject to party discipline – a resolution that lays the groundwork for new spending worth $ 3.5 trillion – suffers from two common problems of the fiscal journalism: lack of quantitative context and inability to clearly distinguish between increased spending and fiscal stimulus, which are not necessarily the same.

Regarding the first point, yes, $ 3.5 trillion is a lot of money. But this spending is intended to help rebuild the American economy, which is huge. We are talking about a long-term spending plan, under which the money would be disbursed gradually over a decade. And America’s GDP in that decade is likely to be around $ 300 trillion ($ 287.7 trillion, according to the Congressional Budget Office).

So forget about the headlines calling the plan “massive” or “huge.” It is a plan that could make a huge difference in the lives of many Americans and help build a better future. And it hardly represents a little more than 1% of GDP. It would not be enough to cause serious inflation problems even if all the spending were borne out of money.

And the budget resolution does not foresee pure deficit spending. In other words, it is not like the American Rescue Plan approved at the beginning of the year, which was financed entirely through debt.

Rather, the Democrats propose to pay for most of the new spending with new taxes on the rich (in addition to collecting the taxes the rich owe, but have not been paying). And this means that increased spending on roads and childcare would be offset by a decrease in spending on superyachts and helicopters in the Hamptons. In other words, if you are concerned that the Democratic plan will overstimulate the economy, keep in mind that it would provide less stimulus than the spending figures announced in the headlines might suggest.

But if the plan is not a stimulus, what is? It is basically investment, and that further reduces inflationary risks. Spending on physical infrastructure, both in the law already passed in the Senate by the two parties and in the future law likely to pass only Democrats, would ease the supply jams that have so heavily influenced recent inflation, while increasing at the same time. worker productivity.

What about spending on “human infrastructure”? There is strong evidence that helping families with children will enrich America and make it more productive in the long run, but to be fair, those benefits will take a long time to materialize. However, federal aid for day care and universal early childhood education would also bring much faster results, particularly by helping more women join the workforce. This would expand the capacity of the economy, which is precisely the best way to fight inflation, if managed well.

So what is this all about? I don’t know if some like Joe Manchin, who express their anxiety about inflation, are truly misinformed or just trying to point out that they are to the right of their peers.

If you are honest about your concern about inflation, I would encourage you to ask your staff for numbers. Anxiety about the inflationary impact of public investment does not make sense when you look at the numbers.

If it’s just a question of signals, okay, that’s the policy. But I would tell you to find a way to send signals without weakening your party … and your country.

Because the truth is that the United States desperately needs to invest in its future, in tangible assets like roads or bridges, and also in its people, especially its children. And there are no compelling economic reasons not to make those investments. Debt is not a problem, considering the low interest rates; and inflation would not be a problem, given the ability of the economy to absorb an increase in public spending. We can build, and we must.

Paul Krugman is a Nobel Laureate in Economics

© The New York Times, 2021

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