Opinion | Inflation is coming, and the world economy’s fate depends on the Fed
- China’s entry into the global economy took away the pricing power of labour everywhere else. That drove a disinflationary trend for decades
- But inflation is returning, as monetary largesse becomes a mantra among major economies. There are two possible endings to this story
Three decades of disinflation are coming to an end. The rise of big government in the United States on the demand side and the depressed appreciation in labour income in China on the supply side are the twin forces that are inevitably pushing the world towards inflation.
Some economic quacks have seen the possibility to spend and spend, with no consequences, at least in the short span of a political career, and have proposed so-called modern monetary theory (MMT). They argue that there are no red lines for government indebtedness. Governments can spend and spend until the market says otherwise, that is, when interest rates surge.
Most economic theories are usually a little dodgy. People who teach economics like physics have fooled two generations. Economics is about human behaviour, which is rooted in culture, history, institutions and political systems; it is not just price mechanisms. MMT, though, is even more dodgy.
It basically says you can keep drinking beer as long as you are still standing. If you fall down like a sack of potatoes, then you have had too much. This is how low the economics profession has sunk: they are basically a bunch of quacks who’ll say anything for a buck.