Herland Report: Coming after a year of high inflation, Russia’s war in Ukraine is forcing a reckoning for policymakers and commentators everywhere.
New macroeconomic realities show that the days of mindless demand stimulus, guaranteed bailouts, and activist climate policies must now be put behind us.
Inflation’s return marks a tipping point. Demand has hit the brick wall of supply.
Our economies are now producing all that they can. Moreover, this inflation is clearly rooted in excessively expansive fiscal policies.
While supply shocks can raise the price of one thing relative to others, they do not raise all prices and wages together, writes John H. Cochrane, a senior fellow at the Hoover Institution.
Russia’s war in Ukraine: A lot of wishful thinking will have to be abandoned, starting with the idea that governments can borrow or print as much money as they need to spray at every problem.
Government spending must now come from current tax revenues or from credible future tax revenues, to support non-inflationary borrowing.
Stimulus spending for its own sake is over. Governments must start spending wisely. Spending to “create jobs” is nonsense when there is a widespread labor shortage.
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Russia’s war in Ukraine: Unfortunately, many governments are responding to inflation by borrowing or printing even more money to subsidize energy, housing, childcare, and other costs, or to hand out more money to cushion the blow from inflation – for example, by forgiving student loans.
These policies will lead to even more inflation. Read the full article at Project Syndicate.
