around the world. Many who took this position predicted that inflation would prove “transitory,” fading as output rose and supply chains cleared. The original idea of anwas rooted in the view that inflation would fade on its own as the supply shock fell into the rearview mirror.supply shocks lasted longer than many anticipatedXi Jingping’s zero-COVID policy
that locked down entire cities, including huge bases of goods manufactured for output. Russia invadedpushed back against low oil prices. China’s ongoing refusal to back off its predatory trade practices meant Trump-era tariffs have become Biden-era policies as well. Even here in the U.S., therecovered more slowly than expected, leaving many service sector jobs vacant and even manufacturing production’s recovery sluggish.
Even among those who believed inflation was nontrivially fueled by excess demand, there was a substantial number who underestimated the persistence of inflation. They correctly saw that deficits had pushed demand above the economy’s capacity but under-appreciated how much of an inflationary impulse that would engender. Thebecause money spent by one household becomes another household’s income, facilitating more spending.
, driving demand for services beyond sustainable capacity and pushing prices up. The demand-siders certainly had a more complete view of inflation than the supply-side exclusionists.The most neglected point of view here was the monetarist position known as the. The theory can be stated relatively simply: the quantity of money in circulation is the primary driver of the price level.
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