OPINION: Inflation is back with a vengeance — but is that a bad thing? – By Sebastian Mallaby (The Fiscal Times) / Sept 17 2021
The world is moving into phase 2 of the inflation debate but we are far from the disaster of the 1970s
The author is the Paul A Volcker senior fellow for international economics at the Council on Foreign Relations and author of The Power Law
Early in Bill Clinton’s first presidential term, US Federal Reserve chair Alan Greenspan grew worried. The White House planned to send him a new deputy, the Princeton economist Alan Blinder. The professor’s record on inflation seemed suspect. Rising prices, Blinder had written in the 1980s, were “more like a bad cold than a cancer”. “The myth that the inflationary demon, unless exorcised, will inevitably grow is exactly that — a myth,” he added. The ravages of joblessness were more serious by far. Labour unused in one year would not be available to boost output in the next. It would be lost forever.
A confidante tried to console Greenspan about his prospective deputy. “It’s not like he’s a communist or anything. It’s just in his early publications he’s noticeably soft on inflation.”
“I would have preferred he were a communist,” Greenspan retorted.
It’s worth recalling that quip now, as the world moves into phase 2 of the great pandemic inflation debate. In phase 1, the question was whether inflation would return. We know the answer: it is back with a vengeance. In phase 2, the question will be how much this matters. Is inflation a head cold? Or is it worse than communism — a cancer?
