Unless I'm misreading the numbers (a possibility!), essentially all of the above-target price rises right now are in two sectors, oil and cars. If you're talking about "inflation" right now, that's the phenomenon you're referring to.
So if you are using "rising inflation" as an argument for anything, it's worth pausing and checking if the argument still works if you substitute "higher oil prices" and "more expensive cars."
It's not clear to me why either of those facts, on their own, would be arguments for scaled-back infrastructure spending, or curtailing unemployment benefits, or raising interest rates. But they are not, they still aren't when you call them "inflation."
You could go a step further. Suppose you support a carbon tax (many people do). What is that tax supposed to accomplish? Presumably, higher prices for fossil fuels and fossil-fuel based transportation. If that's not the goal of the carbon tax, what is?
So if you wanted to bring about those kinds of price changes thru legislation, why be unhappy when they come thru market prices? Shouldn't you see it as a good thing? If you want less driving and think prices can deliver it, you should want more of our current "inflation".
(This has nothing to do with NGDP paths or forward guidance or making more space for negative real rates or any other arguments for higher inflation in general. The point is there is no inflation in general, just rising prices of particular things, in this case oil and cars.)
Now some people might say that yes, they support a carbon tax, but that it should include some kind of compensation for those who bear the cost of it, which rising market prices don't offer. That's fair enough.
But the kind of steps you might take to offset burden of carbon tax - direct income supports, investment in low-carbon alternatives - are exactly the opposite of the standard remedy for "higher inflation", which is to reduce people's income and invest less.
*if* they are not
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This is something I think about a lot. I'm really delighted to see someone write it up formally. I am definitely going to be talking about the piranha theorem from now on.
I will try to write up (my understanding) of the argument better tomorrow, but the essential point is that there cannot be a very large number of independent important causes of the same outcome x, because there is only so much variation in x to be explained.
One nice thing about the paper is that they put a number on this. Basically, if a is a correlation between x and y that represents a genuine causal link, then x must be one of the 1/(a^2) most important influences on y.
This FT article on the divergent fortunes of US-based and European airlines is interesting for several reasons. ft.com/content/695513…
First, it's a reminder that the pandemic (and to a lesser extent the response to the financial crisis) has seen a real reversal of the historic pattern where Western Europe has sen more active, interventionist public sectors and industrial policy.
Support for the airline industry is a nice positive example of policy that limits price increases not by reducing demand, but by maintaining supply.
Glad to see people recognizing that when strong labor markets boost wages, this does not have to mean higher prices. Higher wages can equally well be passed on to faster productivity growth. wsj.com/articles/techn…
What's strange, tho, is how people insist on seeing faster wage growth --> faster productivity growth as a *problem*.
As a matter of logic, if you are concerned either that rising wages will lead to inflation, or that lack of labor is holding back growth, evidence that employers respond to rising wages by taking steps to raise productivity should make you less worried.
Interesting: Because data on consumption basket can't be updated as quickly as prices, changes in consumption patterns distort inflation data. This probably led to exaggerated picture of price falls last year, and exaggerated picture of price rises now. ft.com/content/abad2b…
For example, the big rise in used vehicle prices is incorporated into CPI with a weight based on share of household spending on vehicles pre-pandemic. But less household spending goes to vehicle purchases now, so contribution to overall inflation numbers should have been smaller.
(I have to mention in passing a pet peeve of mine in discussions of price indexes: The constant assumption that the only thing that causes important changes in consumption patterns is relative prices. To be clear, this article doesn't do that.)
This one is more sensible. Does anyone want to make the case that "559,000 more Americans chose to work in May" would be equally reasonable? If not, can we dispense with the idea that labor market outcomes are determined symmetrically by labor supply and demand?
The point that **employment levels are chosen by employers** is so banal and obvious there would be no reason to even mention it, if we weren't hearing so much nonsense about employment being held back by "labor supply constraints".
There are three big things to keep in mind about tomorrow's jobs numbers. First, this stuff is noisy. Wherever the numbers come in, you should not draw strong conclusions from them; whatever the picture is now, it may look very different when the revised numbers come in.
While the revisions this spring weren't that big, they changed the picture in an important way: the initial numbers suggested accelerating growth over December-March, while the revised ones are closer to linear. This is important for interpreting the relatively low April number.