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How We Bet Correctly on Inflation

Shopper at a grocery store in Los Angeles, Calif., November 11, 2021. (Mario Tama/Getty Images)
Keynesians and socialists have lost track of half of the equation, which is why they are so reliably wrong.

Back in April, John Cochrane and I wrote up a long conversation we had been having about inflation right here at National Review Capital Matters. John had been looking at the impact of expectations for future policy on inflation, and I had been tediously adding up the demand stimulus and assault on supply contained in the myriad Biden policies. We both were very nervous.

The problem as we saw it was that policy-makers have no stomach for taking actions to stop inflation in its tracks, so inflation was highly likely to accelerate sharply and on a sustained basis.

As we wrote, “When demand soars and supply is constrained, inflation will rise. When people question policy and find it feckless, they expect more inflation, and inflation grows more and becomes entrenched. Persistent inflation grows suddenly, unexpectedly and intractably, just as it did in the 1970s. Some worry that a burst of inflation will lead the Fed to raise rates and thereby stymie the recovery. It is a far greater worry that the Fed will not react promptly, thereby letting inflation and inflation expectations spiral upwards.”

Fast-forward a month, and we at Capital Matters took the inflation seriously enough to spend an entire webinar on the subject. Rich Lowry tested the bounds of my confidence to the point that I stated that I was, perhaps, looking for my Joe Namath moment, almost 100 percent sure that inflation would finish the year at about 7 percent. The liberal howlersphere — intent on pushing whatever economic nonsense it might take to allow Biden a political victory — went absolutely crazy on the topic, arguing that the partisan inflation hawks at National Review had simply lost their minds.

With inflation already a smidgen below 7 percent, and numbers for a big month of December on the horizon, that inflation bet is looking about as safe as the gold in Fort Knox.

Looking back at the amazing year we have had at Capital Matters, that inflation story jumps out as one of the many times that our work has fulfilled our mission. At Capital Matters, we take the analysis wherever the economics leads us, and don’t care two bits that the left-wing economic goons that overpopulate the Internet and economics departments will shriek in horror when we do. Indeed, we don’t even respond to them, believing that the best policy is, as Buckley might have said, to let the fools speak for themselves.

It was certainly not the consensus that inflation would take off this year, but it would have been if there were enough defenders of free markets out there to influence the consensus.

To a large extent, that is our mission. We are not supply-side economists here; we are supply-and-demand economists. The Keynesians and socialists have lost track of half of the equation, which is why they are so reliably wrong.

It is clear that our strategy is working. Writing a bit later about the “de-economics” that was emerging on the left, I concluded that the best way to defeat it is to expose it, something we do here every day.

“Espousing nonsense is professional suicide because the silent majority in the economics profession is too smart to fall for all this,” I wrote.

With the holiday season upon us, please consider supporting National Review Institute and its efforts through Capital Matters to bring free-market ideas to the fore.

For now, don’t get us started on how bad inflation is going to be next year. But check back in a week or two!

Kevin A. Hassett served in the Trump administration as a senior adviser to the president and is a former chairman of the Council of Economic Advisers. He is the senior adviser to National Review's Capital Matters, a new initiative focused on financial and economic coverage, and is the Vice President of the Lindsey Group.

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