So what was the 2021-2 inflation surge about? The most parsimonious explanation is that we had a huge supply shock from the pandemic, far more persistent than I among others imagined, which nonetheless eventually got resolved 6/ rooseveltinstitute.org/wp-content/u... - ThreadSky

pkrugman.bsky.social • 495 days ago

So what was the 2021-2 inflation surge about? The most parsimonious explanation is that we had a huge supply shock from the pandemic, far more persistent than I among others imagined, which nonetheless eventually got resolved 6/ https://rooseveltinstitute.org/wp-content/uploads/2023/09/Supply-Side-Expansion-Has-Driven-the-Decline-in-Inflation-202309.pdf

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clockworkcanary.bsky.social•489 days ago

Bird flu hit the egg supply and that seems to be settling out now. I suspect the prices in some areas or some stores will be sticky at the higher prices because companies do like a larger profit margin.

pkrugman.bsky.social•495 days ago

We don’t know for sure that this is the story. But the vitriolic resistance of some economists seems a bit odd. I guess admitting that Team Transitory, while wrong in the short run — and willing to say that it was wrong! — might in the end have been right about a lot is just too painful 7/

pkrugman.bsky.social•495 days ago

Now, saying that supply-side factors mostly drove inflation doesn’t mean that the Fed was wrong to raise rates. Even though I never bought the Volcker redux story, I thought a rate hike was necessary, and given the resilience so far it doesn’t look wrong. But it’s time to stop. 8/

scottmonje.bsky.social•495 days ago

Can the prolongation of transitory inflation be explained by the fact that the pandemic lasted longer than expected and then was getting worse in China as it receded here?

baack.bsky.social•494 days ago

Annecdotal, but to be observed - situational acute shortages / disturbed supply chain (pandemic) -> desperate purchasing -> opportunistic price increases -> markets not used to price increasing doing so -> noticing it is accepted -> pushing further -> higher profits. But ....

baack.bsky.social•494 days ago

Glut from over-investment (situational) + lack of incentive to invest (higher interest rates) slows things down. Europe worse due to energy crisis. Things take longer to move through the chain than team transitional thought. Underestimated slow adaption / acceptance + effect on profit once accepting

nothingfromnada.bsky.social•495 days ago

Do you have any idea (data-backed or conjecture) as to why the general public remains seems to remain sour on the economic situation despite many of the big indicators showing a quite rosy picture?

jik.wtf•495 days ago

not that guy, but a common disconnect i’ve seen is people whose grocery bill has doubled or tripled since covid not believing official CPI inflation numbers

nothingfromnada.bsky.social•495 days ago

Oh I certainly have my own anecdotes & theories (people have a greater negative response to high inflation & interest rates than is totally ‘logical’) but I’m curious to know an expert opinion.

sigi3athol.bsky.social•494 days ago

My local anecdata is that the complainers here (WA-state, near the Canada border) say that "out of control" housing costs, $5 gasoline, and high grocery prices prove that the economy is terrible. They're only correct on the housing front, but that doesn't stop them.

aaronsojourner.org•495 days ago

Yup, bad news only for #TeamHardLanding.
https://bsky.app/profile/aaronsojourner.org/post/3kcqcdhm3cz24

cetico.org•495 days ago

Any notes about income distribution, any change in trends or in understanding?

karinchenoweth.bsky.social•495 days ago

Thanks for this thread.

--non economist

nspugh.bsky.social•172 days ago

Economic Growth, societal success measured by GDP = continued unsustainable use of earths resources, transgressing planetary boundaries, and ecological collapse.

Change the economic system?

darioperkins.bsky.social•495 days ago

Central banks deserve SOME of the credit (ie it wasn't all transitory). We can see demand destruction in labour markets, but its been concentrated in job openings (unrealized demand) rather than employment. Job mkts rebalanced.

darioperkins.bsky.social•495 days ago

But its hard to know how much was due to monetary policy because the largest labour shortages (highest numbers of unfilled vacancies) were in sector most distorted by the pandemic. So maybe labour mkt would have rebalanced by itself

gentlemanstimes.bsky.social•495 days ago

what about the hypothesis that many firms used supply-side factors in other sectors to quietly raise prices in a way that wasn’t economically ‘justified’, but they felt they could get away with? My reporting on the egg industry made me believe that was the case there https://ambrook.com/research/supply-chain/egg-prices-inflation-bird-flu-price-gouging

clockworkcanary.bsky.social•489 days ago

Nice article. Also hits that different producers had different markets and some store buyers would buy at any price to have shelves with eggs, but farmers market sellers were possibly wary of losing regulars.

We are coming up on cookie baking season again, so I’ll be watching eggs prices locally.

cogenteur.bsky.social•495 days ago

Transitorialty might have been snappier had not Russia invaded Ukraine (shocks/anxieties in food, energy, and some supply chain effects) just when the pandemic shock should have been resolving.

snoozebuttonben.bsky.social•495 days ago

I never left Team Transitory and have already taken my victory lap.

ram1967.bsky.social•495 days ago

Same here!

jonatkins.bsky.social•495 days ago

Seems we know that it’s a big part of the story. Sure, other factors might be contributing but seems that that was surely a big part of it.

chadbourn.bsky.social•495 days ago

I’m particularly interested in any data that shows long-lasting behavioural changes from the pandemic, in a Keynesian animal spirits stylee.

marshally.bsky.social•495 days ago

While I agree that supply shocks lead to 2021-2 inflation, it also seems clear that the parabolic growth in M2 is also a contributor.

patrickdavitt.bsky.social•495 days ago

In Canada, some economists are pointing to egregious price gouging, especially groceries, in part because vertically integrated oligopolies, were taking advantage of popular "expectations" that prices would rise quickly.

russmanheimer.bsky.social•495 days ago

Team Transitory for the win.

leupp.bsky.social•495 days ago

“In the past, corporate profit growth accounted for maybe a third of inflation. But a report from the Kansas City Fed found that nearly 60% of inflation in 2021 was because of corporate profits.” https://www.npr.org/2023/05/19/1177180972/economists-are-reconsidering-how-much-corporate-profits-drive-inflation

fatseanlives.bsky.social•495 days ago

I feel like this was lumped in with his "supply side" comment and it needs to be said more

lisajohnson.bsky.social•495 days ago

Layperson here, my question is with this information from a world-wide shock (the pandemic) and comparing US policy vs. other countries, how have your views on managing the economy changed?

ram1967.bsky.social•495 days ago

Excellent summation! One gets the impression that certain economists really hate to be the bearers of good news. They are almost as responsible for the public’s perception of the economy as the heavily biased MSM. Keep bringing the good stuff, the audience will follow.

differance.bsky.social•495 days ago

We knew that. Unfortunately we also had Larry Summers muddying the waters

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