We Need to Talk About Inflation: 14 Urgent Lessons from the Last 2,000 Years

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The book is genuinely interesting throughout, yet also wide‐​ranging, so choosing sections to review is difficult. But three areas where King has alot of particularly interesting things to say are on how policymakers might think about inflation’s persistence, why inflation matters, and the difficulties of alleviating modest inflation. And this is what the real income per capita numbers hide: large bouts of inflation create extreme winners and losers in quite undemocratic ways. Asudden bout of inflation obviously makes those on fixed incomes or stable government benefits alot worse off, while those for whom wage increases occur only infrequently see their purchasing power collapse. On the other hand, those who can borrow heavily and invest the funds in physical assets and real estate, or who have alot of pricing power over their labor, can often come out of inflationary periods sitting (relatively) pretty. These effects are often arbitrary and politically explosive.

If you do nothing, you will be auto-enrolled in our premium digital monthly subscription plan and retain complete access for 65 € per month. King also is clearly correct that both supply‐​side and demand‐​side factors have driven the surge in the price level since 2021. Yet, one downside of his not outlining his own “model” of the economy is the failure to define his own preferred monetary rule and so make ajudgment on what actions central banks should have taken and when. He admits that in periods like what we’ve lived through, “policymakers are not easily able to distinguish inflationary squalls from periods of inflationary persistence.” That is true, but it is difficult to square with his justified criticism of the complacency of the economic establishment in letting the inflation genie out of the bottle of late.

14 Urgent Lessons from the Last 2,000 Years

In the final chapter, he looks at possible solutions including institutional constraints while offering the following 14 lessons: it leads to extreme redistributions of wealth that are rightly perceived as arbitrary and unfair, and Celebrated economist Stephen D. King—one of the few to warn ahead of time about the latest inflationary upheaval—identifies key lessons from the history of inflation that policy makers chose not to heed. From ancient Rome through the American Civil War and up to the asset bubbles of today, inflation stems from policy error, sovereign greed, and a collective loss of faith in currencies. Some interesting conclusions though. In King’s view the argument used by central banks against tightening, that it was all just ‘transitory’, was fuelled by central banks having presided over a low inflation environment for nearly two decades, falling victim of their own anti-inflation propaganda. As a result, serious mistakes were made when circumstances suddenly changed. We saw the impact of the supply and demand imbalances when Covid restrictions ended and then the extra pressures on energy and food prices with the war in Ukraine. But in King’s view the reappearance of inflation in the last couple of years was not just “a series of unfortunate events” but should have been seen by central banks and acted upon more swiftly.

But now people the world over are confronting a poisonous new economic reality and, with it, the prospect of vast and increasing wealth inequality. How have we arrived in this situation? And what, if anything, can we do about it? Celebrated economist Stephen D. King-one of the few to warn ahead of time about the latest inflationary upheaval-identifies key lessons from the history of inflation that policy makers chose not to heed.The government green-lighted Wall Street’s consolidation into five giant banks, of which JP Morgan is the largest. A FINANCIAL TIMES "BOOK TO READ IN 2023" "Everything you wanted to know about inflation but were afraid to ask."-Mervyn King "King's lessons command our attention."-Lawrence H. My kind of inflation book. There is lots of great storytelling, which lightens the subject matter, and makes it accessible to non-experts.”—Moira O’Neill, Financial Times, “Best Summer Books of 2023: Money” As with all the best economists, King’s views are grounded in an understanding of our historical experience.”—Roger Bootle, Daily Telegraph

Everything you wanted to know about inflation but were afraid to ask. This book is timely, well-researched and very well-written.”—Mervyn King, former governor of the Bank of EnglandMost of those who have to deal with inflation are too young to remember when it was last a serious issue. This book teaches them what they need to know. King’s lessons command our attention.”—Lawrence H. Summers, former US Treasury Secretary Impulse for bad policies / People will not put up with these disruptions for long before they demand that politicians act. Unfortunately, that can lead to bad policies, such as bailing out some people (a palliative that doesn’t solve the underlying inflation problem) or price controls (which create shortages and all sorts of other inefficiencies). King exhaustively and patiently takes on the case for price and wage controls, expertly using the historical evidence to rubbish their prospect of solving inflation. Test 1: Have there been institutional changes that would suggest an increased bias in favor of inflation? Unfortunately, by 2021, the answer was yes. The Fed’s move in 2020 to an average inflation targeting regime is one example. It created adynamic in favor of above‐​target inflation, King argues, because the public knew that central bankers would be less likely to react to big overshoots in inflation with big undershoots that risked about of much‐​feared deflation. The use of quantitative easing (QE) for over adecade, too, put downward pressure on bond yields, eroding the value of freely moving bond prices as an indicator of inflationary pressures. And central bank independence paradoxically made the monetary authorities less willing to spell out the inflationary consequences of large amounts of government borrowing when inflation started rising significantly; musing on this would be seen as too political. Distributional costs of inflation / Why is inflation such abad thing? Many people conflate inflation with the cost of living and are hostile to it because of the effect arising price level has on the real value of some fixed forms of income and wealth. But King uses aremarkable statistic to show that this shouldn’t be our main inflationary fear.