Got That Wrong: Inflation

As you saw last Friday, I am starting a new feature: “Got That Wrong.”  I have been blogging a long time.  It’s time to go back and fess up on things where I “got that wrong.”¹ 

Today, inflation.  I have really gotten that wrong over the years.  I have written about inflation many times.  And I have been wrong pretty much all of them.  At one point, I wrote about an increase in the money supply that did not result in an increase in inflation.  I thought it might have been because there was a drop in the velocity of money.  I don’t know.  For whatever reason, inflation didn’t come.  Which I think is good.  Others, such as the Federal Reserve here and the European Central Bank there, don’t.  They have been trying, and pretty much failing, to get the inflation rate up for quite a while.  

I have reduced my writing on economics because I am not an economist and, mostly, because I have been wrong so often.  It was getting embarrassing.

As to what will happen in the future, I would normally worry about inflation for a couple of reasons.  One, a lot of money is being saved because people don’t have anything they want to buy.  Once the economy opens more, they might start spending.  More demand might drive prices up.  (Former Treasury Secretary Larry Summers has mentioned this possibility.)

Second, Jay Powell, Federal Reserve chair, has said that the Fed’s inflation target is no longer 2%, i.e., keeping inflation at 2%.  Now it is keeping inflation at an average of 2% over a period of time, which allows inflation to go over 2% for a while to catch up for times when it was under 2%.  And there have been a lot of that in recent years.

If you allow inflation to go above 2% for some period of time, in order to get the average up to 2%, the question is how hard it will be to bring inflation back down once you get to the 2% average.  In the past, getting inflation down has been hard.  See Paul Volcker.  Maybe things are different now.  Maybe it won’t hard for the Fed to bring inflation back to 2%, after it has been above that rate for some period of time.  We will see.

As I said, I have been getting inflation wrong for a long time, so any worries I have may be misplaced.  Some might say I am due to get it right eventually.  On the other hand, for most of my life, I would say Cubs batters were due if they hadn’t gotten a hit for a while, when it was really that they just weren’t that good.²  Which may be the point on my views on inflation and the economy.
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¹ This will be only an occasional feature and will only cover some of the things I have gotten wrong.  If I tried to do them all, I wouldn’t have time for anything else.
² George Will made this point about the Cubs first.  (Here among other places.)  I am borrowing it from him.