For more than a year now, the major economic story hasn’t been inflation but rather supply. This was primarily due to governments around the world overreacting to the pandemic, so businesses the world over found it exceedingly difficult to respond to recovering (sometimes boosted) economies. In very basic economics (small “e”), such inelasticity on the supply side means prices are the only factors to adjust to any change in demand.
It was never about money printing or actual inflation, rather it was merely the continuation of mainly COVID-19 politics reducing global business flexibility to answer in the necessary ways for a legitimate recovery.
Despite the general knowledge and awareness of this fundamental imbalance, for also mostly political reasons, consumer price indexes (CPIs) were purposefully intermingled with economic circumstances anyway. The more any CPI accelerated, the more it was said to have been from the “red hot” recovery (Warren Buffett) generated by the successful implementation of 2020–21 rescue efforts.
Unsurprisingly, the most vocal “CPI is the economy” proponents have been within the group which championed those purported rescues the loudest. From Larry Summers to Janet Yellen and now Paul Krugman, mainstream economists have been extolling the powers of so much “stimulus.”
The last on that list, Krugman, wrote in a tweet just the other day a perfect summation of their position: “The problem may be that the Biden economy boomed ‘too much,’ feeding inflation, and that it now needs to cool off, which may involve a recession (but hasn’t yet).”
There is a world of difference between a scorching-hot economy slowing down a tad before stabilizing (as President Biden himself has said) and one which never got going all that much to begin with before getting rocked by supply-restricted price action it therefore couldn’t afford, and after having literally paid for it, can no longer hold.
Evidence for the latter is everywhere, including the fact that six months ago no one (apart from a few of us who don’t ignore market curves) was even talking about recession, technical or otherwise. Suddenly, the word is mentioned practically everywhere, including by Krugman, a fact which already marks a material downshift in commentary surrounding the economy commiserate with the obvious downturn in circumstances.
