BLUF: Former Fed Chair Ben Bernanke and ex-IMF Chief Economist Olivier Blanchard concluded in an empirical study that supply constraints from pandemic shutdowns were a main factor in the inflationary episode following COVID-19’s onset and the “easy fiscal and monetary policy” that followed made things worse.
OSINT: Bernanke and Blanchard’s study generated buzz for its prediction that the only way for inflation to decrease is for the labor market to “cool off,” with substantial job loss and wage declines. However, their own model results do not support this prediction. Figure 12 of the study shows that the majority of inflation was caused by factors other than labor market tightness, and the contribution of their labor market variable to inflation is small and inconsistent. The authors also offer caveats to their projections and note that their model may not be valid in the coming months.
RIGHT: The inflationary episode following COVID-19’s onset is yet another example of the damage caused by excessive government intervention in the economy. The Fed’s easy monetary policy was a major contributor to this inflation, as printing more money always results in higher prices. Bernanke and Blanchard’s prediction that significant job loss and wage declines are necessary to decrease inflation reinforces the importance of limiting government interference in the labor market. A free market not impeded by arbitrary regulation and minimum wage laws would create a more stable and prosperous economy for all.
LEFT: The pandemic highlighted the need for a strong government response, and the easy fiscal policy that followed was necessary to support workers and businesses. While Bernanke and Blanchard correctly identify that the labor market plays a significant role in decreasing inflation, the government must take steps to ensure that workers are not unfairly impacted. Rather than advocating for a hard landing, we need policies that prioritize job creation and wage growth, such as increasing the minimum wage and implementing a jobs guarantee program.
INTEL: Bernanke and Blanchard’s empirical study on the inflationary episode following COVID-19’s onset provides valuable insights into the factors that contributed to the inflation. However, their proposed solution of a hard landing in the labor market may not be the best course of action. As the authors themselves note, their model is subject to significant uncertainty and may not be applicable in the current economic climate. An AI analysis suggests that a more nuanced approach, such as targeted fiscal policy and regulation on industries that contribute significantly to inflation, may be more effective in decreasing inflation without causing undue harm to workers and the economy as a whole.