The reality is that the explosive demand, alongside with a lagging supply can lead to an inflationary pressure not seen since the 1970s. At least in the 70s the information technology revolution was just around the corner. Right now, it feels like the supply issue cannot be remedied or solved because of heavy regulations and a stagnant productivity.
Haven't you ever heard of "talking your book"?
I described Sahm and Krugman as dovish and I think that’s more than fair to people who disagree about what inflation means right now. I don’t like pieces like this one that speak authoritatively on so little evidence.
Fed critics like that definition because it lets them more easily paint the fed in a bad light. They claim the fed is crazy because prices never fall. I think that's disingenuous because of the improper definition of 'transient'.
Will inflation be transitory? Probably yes, if you use the first definition. I don't think there has been a situation in modern history where prices in America have backed off significantly. Prices are sticky, especially when labor shortages combine with inflationary pressures to drive up wages and therefore the costs of production. I suppose you could take a few hits off Cathy Woods' pipe and claim robots will take all of our jobs and send us into a deflationary spiral next year, but I think that's likely several years away at best.
"Hedge funds guy" are extremely partisan, in that they will fight hard to prevent any kind of legislative or other systemic change that would threaten their rent-seeking. They invariably favor the status quo and/or anything that increases their ability to profit, regardless of other consequences it may have.
I'm not going to claim that Krugman isn't "partisan" (although I think using this term to describe him undermines the meaning of the term), but I'm also not willing to accept that "hedge fund guys" are not.
To be honest, I am not a huge fan of hedge funds either. But in this specific case, I'd rather take their advice. In my opinion, for this specific case --discussing inflation trends--, I don't see a lot of room for hedge funds to be partisan? No new legislation, no wrinkles in the system, etc. And they may be wrong, and Krugman may be right after all. Economics, especially Macroeconomics forecasting analysis, should be treated with some reservation. I just find the particular post quite convincing given what I've observed in the last few months.
They have billions of dollars of bets on where interest rates go. Inflation trends and how they are interpereted are what drives interest rates.
If the fed took on board this particular interpretation at the next meeting Bridgewater would make low double digit billions on those trades.
Doesnt make them right or wrong, but anytime you see a talking head on cnbc or putting out a research note - they are talking up their positions.
Not really, right? They make a lot of money even after they get it wrong?
"Right now, it feels like the supply issue cannot be remedied or solved because of heavy regulations and a stagnant productivity."
This supply issue has existed for, what, a few months? We can literally see the containers piled up on the coasts, is there a good reason to believe that once the backlog is cleared there will be some kind of permanent problem? I have not seen a compelling argument, the original article here doesn't make much of an argument for sustained issues although they give that impression with the headline and the intro.
I will be very shocked if heavy sustained demand doesn't induce productivity gains (which have evaded the US economy for quite some time), but I will also be very surprised if the level of demand we are seeing from pent-up COVID-19 cash sustains itself much longer, a lot of goods demand is going to convert into services demand - if only because of shipping delays.
If they get it wrong clients may move their money elsewhere
All the incentives are aligned to go big on a theory and talk it up, and then if you are wrong just dust yourself off and try again- all the while cashing your paycheques.
(I remember him discussing it in detail in this [1] debate with Larry Summers, although it's been a while since I watched it).
That view doesn't seem to contradict the original article, which says prices will increase "unless there is a significant boost in productivity so supply can catch up with demand, or policy makers shift to a tighter stance".
A significant role in bringing the world economy to its knees in the financial crisis - that sort of thing?
From where I sit, Krugman has been right a lot more often than the competition over the last few decades.
They do, but not in the game of writing truthful blog posts. If you think the market consensus on future inflation is wrong, you can buy TIPS, maybe even with leverage. People buying and selling those literally have skin in the game for future inflation.
Atleast the labor supply is artificially constrained in the usa by immigration restrictions. All they have to do is loosen some (they wouldn’t need to be completely removed).
As for paying much attention to him in academia, afaik he's not really active in the publish or perish academic game anymore so I don't get this as a criticism, but his influences are still there.