Fighting inflation by increasing supply is a multi-decade project

Let's play the long game.

Prices are still going up, up, up, and the Fed is determined to put a lid on things. Powell is pretty much certain to raise rates in March, and traders are betting that rates will rise to over 1% by the end of this year. So far, that seems to be keeping a lid on inflation expectations:

Meanwhile, the fundamental driver of inflation is probably high demand for physical goods from pent-up Covid savings and Covid relief. Well, Covid relief is over, and pent-up savings are running out, and you can see this in the fact that rent growth is moderating:

Carl Gershenson 🏘️ @cgershenson

Rent growth is cooling down in recent months, but year-over-year growth is still at a record 17.8%. vacancy rates started inching up in the summer, and month-over-month rent growth began declining thereafter (from @robnock_ et al) apartmentlist.com/research/natio…

Meanwhile, even the comparatively small amount of spending represented by Biden’s not-particularly-ambitious Build Back Better bill looks likely to be cut even further, if anything substantial even passes at all.

So really there’s nothing to panic about, right? Just wait for this annoying burst of inflation to end. But Americans are still upset and pessimistic, despite the surging economy, and so some people are still trying asking what more Biden can do about the inflation problem.

The Washington Post recently had a panel of 12 economists weigh in on what to do about inflation, and their answers seemed to fall into three categories:

1. Very bad ideas that we should not do

2. Good ideas that make long-term sense but will not bring down inflation soon

3. Waiting for the Fed to handle it

Basically, we should avoid doing the things in category (1) and do the things in category (2). But expectations management is the key here; we need to make people understand that inflation isn’t going to be over tomorrow, and that they shouldn’t expect the policies in category (2) to be quick fixes. Instead, the policies in category (2) should be pitched as ways to protect us against inflation the next time it comes around — to create an economy of abundant supply, where we won’t have to live in fear of an inflation repeat.

So anyway, let’s go through these economists’ ideas.

Please, no gaslighting, no austerity, and no price controls!