Twitter Roundup: Inflation

There are many opinions on inflation and why it is a problem...or isn't one.

By Nate Griffin – November 18th, 2021

The twitter gloves are on (or off?) and most of the big names in economics have voiced their opinions. And the comment sections are best read with a bucket of popcorn.

Noah Smith, a prolific economics writer has been very vocal about the reality of inflationary pressures in the economy today. I recommend checking out his recent blog post on the subject. There, he gives his thoughts on why inflation is more than just hype, which is how some media outlets have seemed to portray it.

His arguments do come from a place of grounded concern. Recently released data from the BLS shows that year over year inflation adjusted income did fall by 1.2 percent in October. So, this seems to contrast with those who are down playing the fears. Some are insisting that that inflation is media propaganda created only because it hurts the very rich.

But the rich don't seem to be hurting too much, especially when factoring in the gains in home prices, rents (if you're a landlord) and the stock market over the last year.

Often, however, real income gains or losses are more nuanced. Notable economist Arindrajit Dube recently posted this chart showing that, in actuality, the workers in the lower end of the wage distribution have seen their income rise faster than inflation.

This isn't too surprising as many workers in the service industry have fled to other careers, or maybe just left work entirely. This shortage of workers has pushed up wages in those fields. It's the middle class who, due to rises in import, food and energy prices, have seen their real income fall.

The well known economist Paul Krugman doesn't seem too worried about inflation. And he makes a good argument that these price increases might be temporary. He explains that, while inflation is happening, it's largely caused by bottlenecks happening in strategic sectors, like ports and resource extraction. Many of these bottlenecks will eventually clear up.

Tyler Cowen recently published an in-depth analysis on the negative effects of higher inflation. In it he describes the disruptive nature of inflation. Wages eventually rise, but usually they lag behind, leaving workers struggling to catch up. Many workers do change jobs, but this is usually a stressful experience. He also points out that inflation brings the real possibility of dis-inflation or a recession.

It is easy to be lost within the sea of varying opinions on this topic (and many other Macro economic topics, too). But, changes in monetary and fiscal policy – and their resulting inflationary effects – is an extremely complex topic. And each individual will have their own unique experience, some benefiting, some being hurt.

So each economist might look look through several lenses (hopefully) and interpret the results as they see fit, but that also means that they might be missing part of the experience.

It goes back to that Econ 101 tradeoff between efficiency and equality. Right now, increased monetary supply coupled with a short supply of labor has created these inflationary pressures.

And while workers in the lowest income levels have probably seen their real wages rise, that might be at the expense of the middle class.