Record inflation? Daughter of scarcity – and of the resounding fiasco of economists

Record inflation is revealing of this: we have entered thewas of scarcity.

The novelty also sanctions the failure of economists. The vast majority of experts – public and private, employed in the world of finance or in governments or academia – has not seen the biggest economic breakthrough in recent yearsthe transition from a period of deflation (stagnation of everything, including prices) to a period of generalized shortages and sharp rises in prices.

The fiasco of the economists is fraught with consequences, it has contributed to make matters worse because it has pushed central banks and governments to actions that aggravated inflation rather than prevent it.

It is not the first time that the profession of the economist comes out of the reality test battered, indeed the last few years have been a succession of similar cases: they could not foresee 2008, they got recipes about the Eurozone wrongthey predicted Apocalypses that never happened after Brexit and Trump’s duties.

There are exceptions but they are very few. Larry Summers (former US Treasury Secretary) e Olivier Blanchard (former chief economist of the International Monetary Fund) they were among the few to sound the inflation warning in early 2021. Unheard, because most of their colleagues were of the opposite opinion: inflation would be a brief flare-up, a very temporary consequence of the pandemic.

Even a year ago at this time, the Federal Reserve and the vast majority of economists predicted inflation of 2% at the end of 2021. Instead, 2021 ended with inflation that was double to triple the average of everyone’s forecasts. large economic institutions, including central banks. And still, economists are unable to explain the alignment of European inflation with American inflationboth at 8.6% despite different conditions in their respective economies.

The fact that the overwhelming majority of economists were “on the wrong side” of their predictions explains why the richest economy on the planet is the most powerful central bank they added fuel to the inflation fire when all the conditions for the fire were already in place.

Convinced that America and the world were on the brink of the pandemic, that is, in a situation very similar to the financial cataclysm of 2008, two American governments (the Trump and Biden administrations) and the Federal Reserve they have exaggerated in their support for the demand. Trump signed two $ 3 trillion public spending maneuvers in 2020. As soon as he took office in the White House at the end of January 2021, his successor launched a third one worth 1.9 trillion, deaf to Summers’ appeals who considered it irresponsible: in fact the US economy had already rebounded strongly, household income was recovering quickly, unemployment was reabsorbed at a rapid pace. In part, the US Democrats wanted to ignore the danger of inflation because it supported a political agenda: the fear of an economic disaster created ideal conditions for launching a vast program of aid to families, social expenses and welfare. It was the Biden-Roosevelt period, in which the president who took office a year and a half ago felt he was the continuer of the New Deal of ninety years ago. Moreover, the flood of purchasing power created by the three maneuvers amounting to 5,000 billion, together with the immigration block, has effectively strengthened the bargaining power of American workerswhich in the “magical” year 2021 they grossed record wage increases.

If the American left could ignore the danger of inflation by a deliberate, albeit shortsighted, ideological choice, the Federal Reserve’s error in forecasting and behavior is sensational: still in November 2021 the central bank was committed to creating liquidity by buying Treasury securities and bonds linked to mortgages, at the rate of 120 billion per month. More fuel on the fire of inflation.

Of course no one had foreseen Vladimir Putin’s invasion of Ukraine
taken on February 24 of this year (although there would be discussion about this “surprise” compared to a premeditated event from 2014).

But scarcity and inflation are not consequences of war, not only that.

The aggression against Ukraine has aggravated shortages in certain sectors – energy, food, some minerals and metals – but supply problems were present even before.

Forecast errors and the resulting delays in reaction now haunt the authorities. Biden’s popularity is not benefiting from wage increases, as meanwhile rising cost of living is wiping out benefits for workers and consumer confidence is plummeting. His central bank is forced to chase events, to operate a harder and faster monetary tightening, because his credibility has been dented in the markets.

Mysteries remain. Europe spent much less to help its citizens during the pandemic, it did not create the excess demand that was generated by Trump-Biden, yet finds himself with an identical cost of living.

The Japan it has a monetary policy just as generous as America’s yet it does not yet know any significant signs of inflation.

Also the China is part of the catalog of mysteries, because it has frenzied increases in production costs (raw materials), has experienced prolonged production stoppages (lockdown
), and yet at the moment it is not subject to inflationary pressures comparable to Western ones.