The Nobel economist got inflation wrong

 The Hill:

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When it looked like the Democratic majority might include enough deficit hawks to scuttle the bill, Nobel Laureate economist Joseph Stiglitz rounded up another 16 of the 36 living American Nobel Prize economists to declare, in an open letter, that whatever upward pressure on prices all this new money might bring there was no threat of inflation.

Forget what government statistics were already signaling. Many non-Nobel economists recognized that a clear case of demand-pull inflation was already underway. The price of used cars, the vehicles people buy when new cars seem unaffordable, led a clearly rising consumer price index.

The Nobelists’ letter showed that those signing had bought Team Biden’s novel argument that its enormous expansion of social welfare programs really was just a different form of infrastructure investment, just like roads and bridges. Gary Becker, the Nobel economist recognized for developing human capital theory 50 years ago, likely would not look at spending $410 billion on “climate resilience” as being as important as providing after-school enrichment programs for poor kids.

No matter. In an act of intellectual legerdemain, the wise men said that expanding social welfare programs would operate like old-fashioned countercyclical policy — unemployment checks would support a continuing but smaller level of consumer demand. This approach, a clever idea developed by practical post-war economists, was careful not to disincentivize job searching by setting benefits too high.

The laureates seemed to have overlooked that previous COVID benefits had often exceeded what tens of millions of workers regularly earned and that recipients displaced by COVID were never required to look for other work. While the high priests of economic “science” were cheering on higher federal spending, larger deficits and increased taxes, employers were and are continuing to deal with inflation face-to-face. They are forced to bid up wages, sometimes doubling them, to keep and get employees even as overall labor force participation seems unlikely to return to pre-COVID levels anytime soon. Higher labor input costs are certain to lead to higher prices for most goods and services.

The Nobelists assured that we would see a robust recovery because of President Biden’s “active government interventions.” Their presumed authority was used to give credence to the president’s continuously twisting storyline on inflation — that it was “transitory,” good for the economy, a “high-class problem,” Putin’s fault for invading Ukraine, and the greed of oil and food companies causing rapid price increases in gasoline and groceries.
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Inflation was already out of control by the time they were worried about spending the new money.  They seem to overlook the fact that Covid has restricted the supply of goods to the point it was already driving inflation.  Add Biden's restriction of the supply of fossil fuels which also triggered inflation. It cost more just to get what goods were available to the market.  It cost more for farmers to produce food. It cost more to heat and cool homes.