The thing the economists’ models omit are the unforeseeable events that have a way of occurring in this thing we call “history”. Despite the fulfillment of my prediction last year that the Fed would have a real problem with inflation expectations if there was a war, people still seem to be assuming that global economic life will return to “normal” (meaning 2019) starting very soon.
Team Transitory thinks that not only inflation is transitory. They think the pandemic and the war in Ukraine are transitory, too. But the striking thing about all three is precisely that they just keep going, in defiance of Americans’ attention-deficit disorder.
Has China’s “Zero Covid” policy miraculously prevailed over the omicron variants of the virus? Only in Beijing’s propaganda. In both the capital and Shanghai, they are back to mass testing and restrictions.
Is an end to the war in Ukraine imminent? Only in the imaginings of those who have insisted all along that Ukraine would win it. On the bloody battlefields of the Donbas, Russia is gaining ground in a brutal war of attrition.
The 1970s are here to remind us that one damned disaster leads to another — and sometimes more than one — and that’s what makes it much harder than it looks in an economics textbook for a central bank to recover from a big monetary-policy mistake.
Niall Ferguson
Interesting historical perspective on a previous phase of high inflation in the US economy, and how the Fed failed to keep it under control because of political pressure and delayed and insufficient measures. As Romania was behind the Iron Curtain back then, I have little knowledge of that period, but I remember my parents constantly complaining how standards of living worsened considerably in the ‘80s. I used to think this was entirely because of the mismanagement of the Communist regime, but perhaps our economy felt the adverse effects of the global economic shocks and geopolitical instability as well.
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