Demystifying Inflation: New Book Sheds Light on Its Evolving Role in Monetary Policy - The American Spectator | USA News and Politics
Demystifying Inflation: New Book Sheds Light on Its Evolving Role in Monetary Policy

We Need to Talk About Inflation: 14 Urgent Lessons from the Last 2,000 Years
By Stephen D. King
(Yale University Press, 230 pages, $28)

The current inflation rate in the USA is 5 percent, significantly down from its June 2022 apex of 9.1 percent. Yet, given that this rate is more than two basis points higher than the Federal Reserve’s target of 2 percent, concerns about rising prices and a possible recession persist. Identifying the dynamics of an inflationary environment is no easy task for those who are not economists. Moreover, the global monetary policies for containing inflation are also difficult for the average consumer to grasp. Economist Stephen D. King attempts to cut through inflation’s opaqueness with his new book, We Need to Talk About Inflation: 14 Urgent Lessons from the Last 2,000 Years.

We Need to Talk About Inflation provides insight and detailed context about the history of inflation, drawing upon various past civilizations such as ancient Rome. The author also examines the complex relationship between fiscal policy, which concerns the government’s revenue collection via taxation or expense containment, and monetary policy, which deals with control of the money supply and the setting of short- and long-term interest rates. History has demonstrated that fiscal expediency often takes priority over monetary stability.

King asserts that a policy focused on deflation avoidance leads to an inflationary bias.

King, who is British, draws most of his contemporary talking points from the U.S. Federal Reserve System and the European Central Bank. One well-known example is the implementation of quantitative easing, where the central bank purchased government debt in order to kick-start economic activity. Unfortunately, quantitative easing soon went beyond being a tool of special circumstances. As King writes, “What started off as an emergency measure designed to offer only temporary monetary succour evolved into a semi-permanent feature of the policymaking landscape.”

King offers up an interesting juxtaposition of inflation with deflation. He pinpoints the turn of the 20th century as the start of deflation dodging, and he attributes this received thinking to the economist John Maynard Keynes, who believed that “if wages were ‘sticky’ and could not easily fall, then price declines would simply lead to collapsing profits and mass bankruptcies, threatening to deliver the mass unemployment seen in the 1930s.” King, however, asserts that a policy focused on deflation avoidance leads to an inflationary bias. Moreover, he argues that there are times when some deflation would be acceptable, such as during the relatively stable period he refers to as the Great Moderation, which started in the 1980s and ended with the Global Financial Crisis.

King cites the global monetary policy response to the 2020 COVID-19 pandemic as an example of this zero tolerance for deflation:

Faced with collapsing demand, central bankers naturally thought that, once again, economies were in danger of entering a deflationary downward spiral. Sticking to their usual approach, they offered interest-rate cuts (where they could) and quantitative easing. Yet the collapse in demand was hardly voluntary and in no way represented the typical liquidation effects seen in a recession or (worse) a depression.

He additionally dispels the notion that post-pandemic inflation was brought about by external political factors. As King writes, “The roots of the post-pandemic rise in inflation lie in the world of monetary complacency, not in Russia’s invasion of Ukraine or China’s ongoing COVID lockdowns.”

The author is also critical of the perception that central bankers are omniscient soothsayers but does allow for the possibility that the behavior of the general public may play a role in “central bankers getting it wrong.” He is additionally wary of the central bank taking on a referee role. For instance, he cites the European Central Bank’s creation of the Transmission Protection Instrument (TPI), a tool that could be “activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area.” King took issue with TPI because he perceived it to be an attempt at nationalization of financial instruments. He also questioned the process for determining what constitutes “unwarranted, disorderly market dynamics.”

We Need to Talk About Inflation is also a practical treatise. In addition to the titular “14 Urgent Lessons,” the book also offers four tests for identifying inflation, which clearly also highlight potential political motivations for identifying or downplaying the presence or likelihood of inflation:

  1. “Have there been any institutional changes suggesting an increased bias in favour of inflation?”
  2. “Have there been signs of monetary excess sufficient to indicate heightened inflationary risk?”
  3. “Is there evidence to suggest that a rising inflationary risk is being trivialized?”
  4. “Have supply-side conditions changed for the worse?”

We Need to Talk About Inflation provides an elucidating, thought-provoking analysis of inflation in both its historical and present-day political contexts. King is to be commended for creating a work that not only distills inflation’s role in monetary policy but also raises important questions about future strategies for identifying and containing it.


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Leonora Cravotta is Director of Operations with The American Spectator, a position she previously held at The American Conservative. She also co-hosts a show on Red State Talk Radio. She previously held marketing positions with JPMorgan Chase and TD Bank. Leonora received a BA in English/French from Denison University, an MA in English from the University of Kentucky, and an MBA in Marketing from Fordham University. She writes about literature and popular culture.
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