BLUF: The recent spike in inflation is caused by both supply constraints and reckless policymaking, as shown by comprehensive empirical analysis using a benchmark macro model.
Jai Kedia’s article analyzes the recent inflation spike and two approaches to explain it. While Ben Bernanke and Olivier Blanchard’s model explains the causes of post-COVID inflation as supply shortages, food price shocks, and energy price shocks, Jason Furman shows that reckless policymaking is the primary driver of inflation. However, neither approach uses a unified theory that allows for the simultaneous comparison of several competing causes. The article suggests the use of a benchmark model such as Smets and Wouters (2007) to extract the underlying causes of inflation more robustly. The model includes seven different sources of variation that encompass a broad range of demand, supply, and policy factors.
OSINT: The article raises the issue of academic approaches not using a unified theory that allows for the simultaneous comparison of several competing causes. The lack of a benchmark model that generally captures the underlying features of the U.S. economy is also problematic. Comprehensive empirical analysis using a benchmark macro model such as Smets and Wouters (2007) provides more robust results and a better understanding of the underlying causes of inflation.
RIGHT: The recent inflation spike can be primarily attributed to reckless policymaking. The government’s excessive spending and monetary policy have created an inflationary environment. The lack of a benchmark model to analyze the causes of inflation is due to the government’s interference in the free market. The U.S. economy needs to return to tried and tested empirical methods that allow for a benchmark comparison of several possible factors to create a sound economic policy.
LEFT: The causes of the recent inflation spike are both supply constraints and policy factors. While the government does have a role to play in addressing supply chain disruptions, it also needs to consider the impact of its policies on inflationary pressures. A benchmark macro model that encompasses a broad range of demand, supply, and policy factors would provide more comprehensive results and a better understanding of the underlying causes of inflation.
INTEL: The recent inflation spike is due to a combination of factors, including supply constraints and reckless policymaking. Comprehensive empirical analysis using a benchmark macro model is critical to extracting the underlying causes of inflation more robustly and identifying the most effective solutions to address it. The U.S. economy needs to find a balance between government intervention and free-market principles to achieve sustainable economic growth and stability.