There seem to be a significant number of economists and economics-adjaent people who generally support strong demand and increased public spending, but are deeply worried about inflation. I'm genuinely curious how they'd answer the following questions.
First, do you think that some (not necessarily all) of the slow growth in employment and GDP after the Great Recession compared to before it was due to the ongoing effects of weak demand (hysteresis)?
Second, if weak demand caused a lasting fall in GDP and employment below the earlier trend, could a sustained period of strong demand (with GDP above current estimates of potential) reverse that damage?
Third, would an extended period of demand above (current estimates of) potential be likely to generate higher inflation, at least during the period in which potential output was returning to its old trend?
And fourth, if it was possible to reverse at least some of the damage from the Great Recession, and put employment and growth on a permanently higher trend, would that be worthwhile even at the cost of a period of higher inflation?
If, like Larry Summers, you think that current inflation proves we've had "far too much fiscal stimulus and overly easy monetary policy," then you must think at least one of the answers is No. But I am baffled which one it is.
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