Thread by @GeorgeSelgin

Actually, although she has a valid underlying point, I think @AOC isn't quite right here. In general, genuine inflation (a persistent, upward movement in many prices) needn't be a uniform movement, for several reasons. 1/n

https://twitter.com/TheStalwart/status/1419041348108361733

It's true that economists believe that, the the absence of cyclical unemployment, monetary expansion tends to raise absolute prices, but that it has relatively little if any influence on relative prices in the long run. Money is, in other words, "neutral" in the long run.

But granting for arguments' sake this long-run neutrality proposition, it doesn't follow that the we can dismiss excessively easy money as a potential cause of inflation because some prices are rising faster than others.

We can't do that, most obviously, if the underlying monetary expansion has not yet worked its way through various markets, that is, if the "long run"hasn't arrived yet!

But we also can't do it because it's almost always the case that observed money price movements reflect the influence of factors other than monetary policy, such as changes in supply conditions and consumer preferences.

Unless these other factors are somehow kept in abeyance, they will obscure the influence of strictly monetary factors upon prices, even when those monetary factors have themselves ceased to operate, that is, even in the long run.

Furthermore, "inflation," and temporary inflation especially, can occur even when monetary policy isn't excessively easy. Adverse supply shocks can cause the _general_ price level to rise, though never in practice by raising prices uniformly in either the short or the long run.

So even if monetary policy were neutral in the short-run, it would not be the case that we could not have "an overall inflationary issue" unless we saw "prices going up in relatively equal amounts across the board no matter what the good is."

To give AOC her due, I suspect that by "an overall inflationary issue" she meant "an excessively easy monetary policy issue." In that case, as I've explained, her statement would be correct _if_ money were neutral in the short-run. But it would still not be generally correct.

I am, by the way, no among those who believe that monetary policy can be said to have been too easy either in terms of the Fed's own stated targets--though I think we are now either at or nearing that point.

So my comments aren't meant to dispute the general claim that recent high inflation figures don't necessarily point to irresponsible Fed policy. My thread is only making use of AOC's argument to clarify some theory.