It’s certainly an interesting exercise in contrasting responses to a huge market shock. Obama was criticized for not doing enough, so Biden went all-in. We now know the Covid-era supply chain shocks were somewhat temporary, and rather than falling off a cliff like it did in 07/08, demand simply shifted to different markets, so one could reasonably conclude that the amount of demand-side spending through the pandemic was a bit excessive. That somewhat unnecessary influx of money is what allowed prices to jump, but it’s also interesting that our rate of inflation was persistently lower than many other developed nations, so it may not have been totally unnecessary. Hopefully economists have learned valuable lessons about the appropriate response to structural failures (like the housing crash) versus structural disruptions (like the pandemic), and adjust their recommendations going forward. Whether or not the recovery fixed some of our more long-term and systemic economy-wide failures like income inequality and the GFC-induced housing shortage (i.e. it didn’t), it’s laudable that Biden and Powell managed a very rare soft landing when they could have just as easily triggered a full-blown recession.
That somewhat unnecessary influx of money is what allowed prices to jump, but it’s also interesting that our rate of inflation was persistently lower than many other developed nations, so it may not have been totally unnecessary.
Isn’t America’s low inflation relative to countries that intervened less the proof that the influx of money was not that cause of inflation? Not so much that spending the extra money actively reduced inflation, but it just turned out to not be a major factor. Meanwhile the extra spending was hugely important for keeping the American economy growing, while underspending held back many other countries.
I honestly don’t know. That explanation certainly makes sense, though. I’ll have to do some digging to see if I can find some studies that looked into it.
It’s certainly an interesting exercise in contrasting responses to a huge market shock. Obama was criticized for not doing enough, so Biden went all-in. We now know the Covid-era supply chain shocks were somewhat temporary, and rather than falling off a cliff like it did in 07/08, demand simply shifted to different markets, so one could reasonably conclude that the amount of demand-side spending through the pandemic was a bit excessive. That somewhat unnecessary influx of money is what allowed prices to jump, but it’s also interesting that our rate of inflation was persistently lower than many other developed nations, so it may not have been totally unnecessary. Hopefully economists have learned valuable lessons about the appropriate response to structural failures (like the housing crash) versus structural disruptions (like the pandemic), and adjust their recommendations going forward. Whether or not the recovery fixed some of our more long-term and systemic economy-wide failures like income inequality and the GFC-induced housing shortage (i.e. it didn’t), it’s laudable that Biden and Powell managed a very rare soft landing when they could have just as easily triggered a full-blown recession.
Isn’t America’s low inflation relative to countries that intervened less the proof that the influx of money was not that cause of inflation? Not so much that spending the extra money actively reduced inflation, but it just turned out to not be a major factor. Meanwhile the extra spending was hugely important for keeping the American economy growing, while underspending held back many other countries.
I honestly don’t know. That explanation certainly makes sense, though. I’ll have to do some digging to see if I can find some studies that looked into it.