This view holds that the prolonged period of rising prices in the 1960s and 1970s was fundamentally an error in the “indirect” macroeconomic management of fiscal and monetary policy, meaning there was too much government spending and borrowing costs that were too low due to lax monetary policy. To the extent this conventional wisdom about inflation is rooted in historical knowledge, it is the latent memory of this conservative diagnosis of the previous serious bout of inflation, which began with the escalation of the Vietnam War in 1965 and extended through the two import-driven oil-price spikes in 19. As the late Arizona Senator and Republican Party presidential candidate Barry Goldwater complained during the late 1960s, “the essential item in the inflation we are experiencing is government spending.” Preparing his California gubernatorial campaign stump speech in 1966, Hollywood actor Ronald Reagan said the same: “The real cause of inflation is government spending.” Democrats, he continued, are “pushing a multi-trillion dollar reckless tax-and-spend plan that will contribute to more inflation and damage our economy.”Īcross the ideological spectrum, influential voices today echo the complaint heard during the Cold War most frequently among Southern Democrats, Midwest small business leaders, and Western insurgents of the Republican Party: Sustained non-defense-related government spending and low interest rates increase inflationary pressures, in turn destabilizing the U.S. “Congressional Democrats’ extreme Leftist policies are contributing to the price hikes hitting Americans’ wallets,” he said in late November. Pat Toomey (R-PA), the ranking member of the Senate Banking Committee, echoes this interpretation. Treasury Secretary Larry Summers describes the present moment as one of an “overheating economy” caused by “far too much fiscal stimulus and overly easy monetary policy.” In The Washington Post, former Clinton administration U.S. He attributes rising prices to the “oversize and poorly designed” coronavirus recession rescue packages of December 2020 and March 2021. “Ultimately inflation is a macroeconomic problem,” writes Jason Furman, the former head of President Barack Obama’s Council of Economic Advisers, in The Wall Street Journal. Despite findings from both journalists and the White House that swelling industry profits and bottlenecks in the industries supplying pandemic-shaped demand are the main forces behind recent price increase, there is remarkable insistence from senior officials in both political parties that general fiscal restraint should be the stabilization instrument of choice. In the current debate among economists and policymakers in the United States about the causes of inflation, one of the most persistent and most deeply rooted questions is whether today’s round of price increases are, fundamentally “macroeconomic” in scope-meaning they are happening because there is a general excess of demand over supply.
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