Unpublished Letters On Inflation

Responses to Alan Blinder and Peter Orszag

(Leonardo AI’s flattering interpretation of me writing letters to the editor).

I recently submitted two letters to the editor, one to the Wall Street Journal and one to the Washington Post. Alas, they were not chosen to be published. But I share them here. They are responses to op-eds by Alan Blinder (WSJ) and Peter Orszag (Washington Post).

To WSJ (prior to the presidential election):

Editor,

Alan Blinder raises many valid and serious concerns about President Trump’s economic policies ("Harris Easily Beats Trump on Economic Policy” (Oct. 31). Yet, in lamenting Trump’s relative polling strength on the economy, Blinder conveniently ignores what voters hated most about the Biden-Harris economy: high inflation.

The Biden administration and its surrogates in DC demanded we “run the economy hot” with fiscal and monetary stimulus coming out the pandemic. We did, total economy-wide spending soared, and we endured the highest inflation rate since 1981.

Initially, the Democrats claimed this was all due to temporary “supply-shocks” like the pandemic and Ukraine war, not excessive stimulus. Then when supply conditions improved, but inflation stayed high, they tried to gaslight voters by blaming greedy corporations and landlords – eventually even proposing anti-price gouging laws, rent controls, and other price ceilings to counteract the subsequent high prices.

A generation ago, economists understood the government roots of inflation and the destructive effects of these price caps. Maybe voters down on Harris’s economic record don't have such "short memories" after all.

To the Washington Post:

Dear editor,

Peter Orszag misses the mark on what caused the recent inflation (“The Real Story of Inflation,” Nov. 14). While he’s right that it wasn’t just all Biden’s stimulus—2020-2021 saw the Fed fuel inflationary pressure by allowing a rapid money supply growth too—his claim that pandemic supply shocks were the main driver of rising prices doesn’t hold water.

Orszag mixes up two key concepts: supply shocks, which cut the economy’s productive capacity, and supply constraints, where surging demand outstrips firms’ limited capacity. The latter is a symptom of inflation driven by excessive demand, not its root cause.

Keeping inflation at 2 percent typically requires total economy-wide spending on final goods and services (nominal GDP) to grow about 4 percent per year. Instead, nominal GDP soared nearly 11 percent in 2021 and 10 percent in 2022—a clear policy-driven surge of demand that pushed prices higher.

Demand pressure easing explains inflation falling too. The figures from Q2 show the same spending metric grew 5.7 percent over the year - consistent with modestly above-target inflation.

Yes, at certain times the recent inflation was **exacerbated** by true supply-shocks, like the international gas price spike. Yet if supply shocks were the main story here, inflation would have been extremely transitory and potentially followed by deflation as those shocks unwound.

Instead, today's supply conditions are good - real output is even above pre-pandemic forecasts - and yet the price index the Fed targets is still 8 percent higher than we’d have expected. Why? Well: that spending metric, nominal GDP, is about 9 percent above its pre-pandemic trend.

While it's trivially true that the pandemic caused high inflation, in the sense that without it we'd not have seen the extraordinary policy, the real inflation story of the past four years is thus one of excessive stimulus.