Today's Bee Letter

5/20/22 Responding to the Sacramento Bee story: "Newsom's inflation relief plan could drive prices up more" by Cathie Anderson and David Lightman


Your story about how refunds might drive inflation is a reminder of just how the pseudoscience of economics is absolutely bankrupt. Current economic orthodoxy says if our central bank (“the Fed”) raises interest rates it would solve shortages and supply chain problems like COVID and jammed ports. Hey, how about we start bleeding patients to heal them too?


There's never a complaint when that same central bank does the "Quantitative Easing" (asset purchases) that lead to inflation in asset prices, but let an ordinary human have some money and the inflation worries shriek from the headlines. The word "bizarre" hardly describes it.

 

Update [from nakedcapitalism.com] 

The Physical Capacity Shortage View of Inflation Employ America (dk). From the executive summary:


Debates about the origin of inflation have so far focused on supply chain disruptions, excessive fiscal stimulus, and an unwillingness to work among the labor force at large. None of these accounts adequately capture the actual constraints fettering economic production and growth today, nor do they adequately explain where price inflation has most substantially materialized. Rather than inflation due to a shortage of labor, what we are seeing today is inflation mostly due to an acute shortage of physical capacity. US consumption and inflation are tightly linked to the constraints stemming from plant and equipment, which are often primarily located or manufactured overseas and subject to their own logistics constraints. If either of these become impaired, there is little ability to meet demand by redirecting production to domestic capacity.