Magazine December 20, 2021, Issue

Inflation: Birthing Pains or Chronic Pain?

(Roman Genn)
We could get a new economy or a ’70s redux, depending

You may have noticed things are getting a little pricier. How’d we get here?

The most basic equation in monetary economics is MV = PY. The money supply (M) times the velocity of money (V) equals the price level (P) times real GDP (Y). It’s based on accounting identities and is always true mathematically. Let’s look at each part in context of the pandemic and see what’s going on.

The Federal Reserve learns of the pan­demic. The only variable in the equation that the Fed directly controls is M, the money supply. The Fed in­creases it to counteract the impending economic doom.

The

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