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Economy

Nobel economists were dead wrong on inflation

2022-04-07

[THEHILL] Last September, as the Build Back Better legislation was being considered in Congress, many members worried about the inflationary pressure of injecting an additional $2.4 trillion into the economy on top of the $4.1 trillion committed to the American Rescue Plan and the Cares Act.

When it looked like the Democratic majority might include enough deficit hawks to scuttle the bill, Nobel Laureate economist Joseph Stiglitz rounded up another 16 of the 36 living American Nobel Prize economists to declare, in an open letter, that whatever upward pressure on prices all this new money might bring there was no threat of inflation.

Forget what government statistics were already signaling. Many non-Nobel economists recognized that a clear case of demand-pull inflation was already underway. The price of used cars, the vehicles people buy when new cars seem unaffordable, led a clearly rising consumer price index.

The Nobelists’ letter showed that those signing had bought Team Biden’s novel argument that its enormous expansion of social welfare programs really was just a different form of infrastructure investment, just like roads and bridges. Gary Becker, the Nobel economist recognized for developing human capital theory 50 years ago, likely would not look at spending $410 billion on “climate resilience” as being as important as providing after-school enrichment programs for poor kids.

No matter. In an act of intellectual legerdemain, the wise men said that expanding social welfare programs would operate like old-fashioned countercyclical policy — unemployment checks would support a continuing but smaller level of consumer demand. This approach, a clever idea developed by practical post-war economists, was careful not to disincentivize job searching by setting benefits too high.

Posted by:Fred

#14 They'd be better off sellin' Buicks, if you know what that means.

Posted by: M. Murcek 2022-04-07 18:16

#13 I guess if they mean their personal economic situation improved after the check cleared.

Posted by: swksvolFF 2022-04-07 18:13

#12 So much for the credibility of the 16 out 36 still living Nobel economists. What did they get for trying to sell the Build-Back-Broke-Biden turkey? Are we sure they aren't like the dead Dem voters?

Posted by: JonhQC 2022-04-07 16:47

#11 ..nuff said.

Posted by: Procopius2k 2022-04-07 15:41

#10 Much easier to blame Car Dealers and Big Meat.

Posted by: swksvolFF 2022-04-07 14:40

#9 In general, half of any group of economists will be wrong on inflation.

Posted by: KBK 2022-04-07 13:36

#8 Milton Friedman wins again!

"Hard drugs are very incentivizing..."

Posted by: M. Murcek 2022-04-07 10:02

#7 Milton Friedman wins again!

Posted by: SteveS 2022-04-07 09:59

#6 Crack futures.

Posted by: M. Murcek 2022-04-07 08:15

#5

Proof if you want to spend $$$$$ in DC, there are always experts you can find to support your habit.

eg. Just ask Hunter ☺

Posted by: NN2N1 2022-04-07 08:14

#4 ...They weren't just 'wrong' - they were complimenting the Emperor on his new duds.

Mike

Posted by: Mike Kozlowski 2022-04-07 06:58

#3 There were 100 Authors against Einstein, groupthink is not proof.

Posted by: magpie 2022-04-07 02:20

#2 ...that whatever upward pressure on prices all this new money might bring there was no threat of inflation.

Correct, it was "no threat." It (inflation) was already taking place. The "open letter" was a political undertaking, nothing more. I am reminded of the gaggle of 52 senior intelligence professionals who spoke against Trump.

Posted by: Besoeker 2022-04-07 00:30

#1 if you read their 'open letter' they presume that the BBB would have reduced 'income inequity' and helped productivity

Economists have made the same wrong assumptions before that the stated purposes of legislation lead to these effects === mthe BBB like many other programs, e.g., the infrastructure bill, the various covid relief bills, have some good sections but a lot of waste, a lot of pork barrel, a lot of special interest subsidy

Posted by: Lord Garth 2022-04-07 00:11

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