Nobel laureate Paul Romer, a New York University professor, discusses current inflation levels and income inequality with David Westin on “Balance of Power.”…(read more)
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Nobel Laureate Paul Romer has recently called for caution when comparing current inflation rates to the high levels witnessed during the 1970s. Romer, a renowned economist, argues that the current situation is fundamentally different, and policymakers should avoid making hasty conclusions or implementing outdated measures to tackle the issue.
During the 1970s, the world experienced a period of high inflation, driven largely by a combination of external factors such as oil price shocks and internal policy mistakes. Countries struggled to control the rising prices, and central banks were often criticized for their inability to effectively address the issue. As a result, inflation rates soared, causing economic instability and eroding the purchasing power of consumers.
However, Romer believes that the current inflationary pressures are not comparable to those of the past. He emphasizes that today’s inflation is primarily driven by temporary disruptions caused by the COVID-19 pandemic, supply chain bottlenecks, and a rebound in consumer demand following the economic downturn. These factors are expected to dissipate as the global economy recovers and adjusts to the pandemic’s challenges.
To support his argument, Romer points out that inflation expectations, an essential factor in determining future inflation trends, remain well-anchored and stable. This indicates that the public does not anticipate a sustained period of high inflation. He also emphasizes that central banks have learned valuable lessons from the 1970s and are better equipped to respond effectively to inflationary pressures.
Romer’s cautionary message is essential considering the potential consequences of overreacting to temporary inflationary spikes. In an attempt to curb rising prices in the past, policymakers often resorted to damaging measures that resulted in economic downturns and unemployment. It is crucial, therefore, to distinguish between temporary inflationary pressures and sustained inflationary trends before deciding on appropriate policy responses.
One such measure implemented in the 1970s, for example, was the aggressive tightening of monetary policy, which stifled economic growth and job creation. Romer argues that such measures, if applied in the current context, may hinder the ongoing recovery from the COVID-19 pandemic and aggravate the social and economic inequalities that have already been exacerbated by the crisis.
It is important for policymakers to adopt a nuanced approach, analyzing the underlying causes of inflation and considering the specific circumstances of the current situation. Romer’s expertise and guidance serve as a reminder not to overreact based solely on historical experiences but to assess the present conditions carefully.
While inflationary pressures should not be dismissed, Romer’s insights stress the importance of avoiding knee-jerk policy reactions that may do more harm than good. By maintaining a balanced perspective, policymakers can effectively address the challenges posed by current inflation while ensuring long-term economic stability and growth.
Deflation is good,, why pretend inflation is what you are against
It’s impossible to have a 2% target when our dollar has changed we should be at 6% to correlate to prices and value of the dollar in 2022
Well, this did not age well…
Democrats paid this guy off.
Ah yes the old pay the least qualified more because it’s fair argument
yes it's not because they measure the CPLie differently now
this one is lala land, if he thinks wage inflation will give the lower income a chance to catch up. everything around them is rising faster, they will never be able to catch home prices, car prices, etc..
Low income will stay low income relative to prices. answer to low income catching up is to work their A$$ off. just like most poor emigrants to this country have done. At some point in your families history you will find someone who worked their tail off to improve the lives of their children and ultimately/hopefully their children's children.
Pretty amazing that many in the profession think this is just a problem of public perception. No one talks about debt service at higher interest rates, which is what they are really afraid of…wages are growing slower than the rate of inflation, BTW.
I work in retail. And the price of goods are not really going up because of inflation, but because its taking longer to clear things at the ports and shipping cist is driving up costs. Inflation is just such a politic-eee ish word.
Lowest quartile of labor market were primarily service workers driven out of labor market by fear of Covid and Covid policies; then incentivized to stay out of market via extended unemployment benefits, Covid stimmy checks, savings; or if older, for fear of Covid; and, thus, market response is to raise labor rates to attract workers. Watched as restaurant paid $21 HR for a dishwasher etc. Money from Fed. fiscal policies on infrastructure, tax etc can take years to flow in and effect the economy. Remember the joke about "shovel ready projects". They do not exist. It is unlikely that any government policies (other than blowing up the labor market in the first place) had any effect. Worked for cities for thirty years. Sometimes would not see Fed. infrastructure funding for years after legislation. And, money meters out slowly. Design and government permitting folks (none in the lower quartiles) get the first bite for a couple of years until project approval. The last in line are the few folks actually carrying the shovels. Wish these economists had a grip on reality.
This is the best analysis of the situation. US is not in that bad shape, too many products entering to shelves now and with sales slowing prices will go down. If oil prices go down 1$ more US won't get hit hard with inflation. Problem is the oil prices in my opinion. US consumers just stopped buying thing that they can delay which is causing inflation to go down with more products on sale for cheaper. Fed's 50 base hike will help. Be optimistic it will be OK. Won't be 2008 again, banks and companies are in better shape.
Not even close
Nobody was surprised by inflation when you increased M1 dollar supply from 4 trillion to 20 trillion in 2 years!
Yes. The times are different. But, the similarity is in the Fed. Its behavior under Powell is an exact mirror image of its behavior under Burns. Dithering about with loads of double speak. Definitely not the refreshing transparency as under Bernanke. Powell's strategy is as he has stated: data driven, day to day with no clear strategy or discipline. The economy is completely unmorred.
Agree,But not on Crypto part
What a crock. Fixed income is going to unsheathe it's angry flaming righteous sword in the ballot box. Corn and circuses, circuses and corn.
He totally ignores the fact that costs of food, grocery, gas, and rent make up a much much larger proportion of the income of the poor and thus inflation hurts them a lot more than it hurts the rich.
Also, for the higher-income class, inflation in the housing market benefits them since their wealth goes up as the price of their house goes up. But for the poor who can't afford a house, inflation in housing only hurts them as they pay more rent, and this hurts a lot as rent makes up a large proportion of their income.
Out of touch with the reality of the lower-class or intentional hypocrisy?
If the price increase of everything was accounted for, stocks, bonds, real estate, etc. then the measured inflation rate (currency debasement) would be much higher. The way they do it wealthy people can get much richer, I have even employed some of the strategies that the wealthy use myself. It works great and if you don't try to do it you will end up at the bottom of the pile for sure
Prices never go dowm! They will fluctuate a little but will always be high.
This is… “the hidden, unnoticed, true success of Biden’s economic policy..”. That’s where you lost us.
This professor is everything that is wrong with our society. Even my donkey understands inflation better than this fool.
During the 1970s, inflation was not much of a problem because the debt/GDP ratio was very low and Volker was therefore able to raise the interest rate to 20% to rein-in the inflation beast without causing an economic collapse.
Today, given that the debt has become the bogeyman of sustainable economic growth, it will be very difficult to put the inflation genie back in the bottle.
Should Powell raise rates beyond 5% to control the inflation, expect a long economic depression that may make the Great Depression look like a dress rehearsal.
Should Powell pivot before reaching 5% at the very minimum, inflation will get even worse and could cause the dollar to collapse.
The Fed is indeed between a rock and a hard place!
He could say the opposite, would still get paid and still be wrong.
Another Economist that will never be interviewed in the future after we enter stagflation
Inflation is a scam banks borrowing money from the public with no payback,also a tactic used by government to farce people back to work,
Tom Brokaw?
"Nobel laureate" what a joke. This guy is very incompetent. You can tell he's ideological, and not an objective, critical thinker. His whole career success was due to conformity to what other people wanted him to say and do.
Wait, wait, wait.
Did you say the hidden success of Biden's policies?
You just lost ALL credibility with me.
All his successes are hidden as there are none.
Biden sunk trillions into a recovering economy and has caused inflation. The job market was already tightening due to a V-shaped recovery. The participation rate is not increasing enough and so the unemployment figure is below NAIRU.
You sir, are a stooge for the failed Biden administration and therefore are not worth listening to.
This so call professor need to go to school again.
If you increase wages of low skill labor and make it equivalent to skilled labor, what is the incentive for a person to get skilled?
This will result in worsening of skilled labor in the long run.
With Joe Biden in the White House and democrats controling both the House and Senate, inflation today is at a 40 year high. Rember when Obama was president and diesel hit $5.00 a gallon and he lectured America "you will never drill your way to cheep gas again"? Donnald Trump brought us gas at half that price and a record high stock market. Anyone as old as me who remembers the days of Jimmy Carter and his double digit interest rates and inflation? My first home morgage rate under Carter was 14%. Anyone starting to see a pattern here?
Who's worse President Carter or Joe Biden?
Oh god! Wage is going up due to inflation idiot not because of Biden's policy.
well thanks for letting us know how lucky poor people are
I’m gonna venture out and bet this guy has never ran a business of his own or had employees.
Everybody is expecting it to come down? Not what everyone expects? Time frame please? This guy likes to speculate. We have been screwed by people like him.
With all respect to the opinion of Professor Romer and the Biden Administration Plans increases in wages of those mostly affected and at the bottom will not help as long as their rents are doubling due to tight market conditions.
When wages go up, the cost of goods and services increase too..there's no getting around that.
Stagflation in the 80's gave us money market bank savings interest rates of 10% and passbook savings rates of 7%, with no risk b/c those bank accounts were FDIC guaranteed…we also paid 15% for a fixed mortgage rate too…I'm hoping for the banks to pay interest rates like they did back then..that'd be the only bright spot in all of this…as for what this nobel laureate says, I think he's full of it.
I still believe this inflation is due to corparate greed and there attempt to buckle down on the working class, they need the general public to be eager and hungry willing to bow to there bosses and work for next to nothing, why don't we have $15 minimum wage.
2.1K thumbs down vs 1.5K up – maybe he is wrong?
He's giving credit to Biden for growing wages – absolutely ridiculous!!!