Interesting; this is a transcript of the Ezra Klein podcast on the Times's website. It is often really good. Here, he is interviewing an historian of economics named Adam Tooze. This is the first half of the transcript. I will post the second half in another post:
https://www.nytimes.com/2021/09/17/opin ... anscript=1
"I’m Ezra Klein, and this is “The Ezra Klein Show.”
It’s obviously not a novel observation to point out that the global economic response to the pandemic was astounding in size. But I want to start today with just some numbers to put this in context. So the O.E.C.D., which is a consortium of a lot of richer nations, estimates that its members issued a total of 18 trillion in debt in 2020 alone. That is the largest surge in debt ever recorded in peacetime.
A whopping 11 trillion of that was just between the months of January and May. Nearly 70 percent of that debt — 70 percent — was in the U.S. alone. The $2.2-trillion CARES Act — that was passed by a Republican Senate. It was signed into law by a Republican president. And it was more than double the size of the 2009 stimulus. In a matter of weeks, the Federal Reserve bought 5 percent of the entire $20-trillion bond market. At the peak of its action, the Fed was buying bonds at the rate of a million dollars per second. These are wild numbers.
But the most revealing part of that response wasn’t what happened. It was what didn’t happen. Bond vigilantes didn’t send markets into a tailspin. Interest rates didn’t skyrocket. Inflation — well, we’re going to talk about inflation a lot in this. But there was certainly no evidence of a hyperinflationary spiral. Private investment didn’t plummet. The terrified view of future uncertainty hasn’t stopped everyone from hiring or making new capital investments.
Instead, the Treasury market stabilized. The financial markets not only recovered, they surged. The decades of doomsday predictions of what would happen if the government should spend huge amounts of money without paying for it — they didn’t materialize, not in the moment anyway.
My guest today is Adam Tooze. Adam Tooze is a brilliant economic historian at Columbia University. He’s the author of the book “Crashed,” which, for my money, is the single best history of the financial crisis, and now of “Shutdown: How Covid Shook the World’s Economy.” He’s also co-host of the new podcast “Ones and Tooze.” Yeah, that is Tooze spelled T-O-O-Z-E like his name. So who said economic historians don’t have a sense of humor?
Tooze’s angle, though, as a scholar, is using financial crises as a lens into the ideology of economics, using them as a way to understand where our economic theories and models match the world, how they’re really created, and then the moments in which they are changed by the world, whether or not the economists behind them admit it. And in just the past 15 years, we’ve lived through two such moments. And so that is what this conversation is about.
As always, my email — ezrakleinshow@nytimes. I always appreciate your feedback, your guest suggestions, your recommendations of things to read, listen to, pay attention to, play, watch. But here’s Adam Tooze.
Adam Tooze, welcome to the show.
Adam Tooze
Great to be here.
Ezra Klein
So you’ve written that one of the central takeaways of the last year and a half is that, quote, “John Maynard Keynes was right when he declared, during World War II, that anything we can actually do, we can afford.” Tell me about that idea.
Adam Tooze
So it’s double-edged. I think that’s the key. And the penny took a while to drop, for me. But 2020, I think, illustrates both sides of this. So on the one side, there is the emancipatory promise, this open-handed “we can afford anything,” by which I think Keynes means, money is a technical issue.
In the end, it’s a question of mobilizing finance, stringing together the financial engineering, doing some of the central-banking arithmetic we might need to do. But in the end, what limits what we can do is not whether we can afford something, but whether we can actually do it.
And this is why 2020 is — it’s a slightly academic way of putting it, but it’s a kind of beautiful illustration of the force of this point, because we could pay for all sorts of things. But could we organize ourselves to collectively socially distance? Well, in the end, in some places, yes, and in many places, no.
Could we roll out a vaccine? Well, we didn’t know ahead of time. Early in 2020, I remember sitting in meetings with science colleagues at Columbia and them saying, we’ve never done this before. We’ve never had a coronavirus vaccine. And we ended up with a whole suite of them. And that depended on the extraordinary skill of the scientists manipulating nature to produce that result. But then again, can we actually organize to roll that out to the entire world’s population? Certainly not at the pace that we’d want to.
So the book is really a kind of meditation on that, on the one hand, enabling discovery: that really finding the money isn’t the problem, and not just in the rich countries. But if the Fed settings are right, and you’ve got competent management, in fact, in much of the world economy right now, that isn’t the problem. The problem is the nitty-gritty. The problem is what economists call the — if you like — more the supply side, the real economy. That turns out to be where the problems are that we need to overcome.
Ezra Klein
I want to drill on this idea for a minute because it is simultaneously deceptively simple and not how we have been taught to think. So what you’re saying here, what Keynes was saying here, is that money can be invented in whatever quantity we want, really. The Federal Reserve can just create more of it. But things cannot be invented in whatever quantity we want.
So if you have 100 jet planes that you can make, and you only have, quote unquote, “money” for 80 of them, the government can create the money for 100. But if you want 120 jet planes, and you can only make 100, then you can’t. And so is the idea here that we’ve often gotten which side the scarcity is on wrong?
Adam Tooze
I think that’s a really good way of putting it. And part of the tension, part of the stress caused by discovering that, really, budgetary arithmetic is just really budgetary arithmetic, is that without it, we face the really harsh political questions of, could we agree to do this? And if we’re not doing it, it’s because you, the other people, our antagonists, don’t want to do it. You’ve got something else you’d rather do. Or it’s the humbling realization that, will it as much as we will, we just can’t do it. We just don’t have the technical wherewithal.
So it’s either the stubbornness of power or the stubbornness of nature that constrains us. And there’s moments when you would quite like to have the budgetary arithmetic back, because that presents these constraints in a more abstract form.
Ezra Klein
Well, it also makes a pretense of constraint. So you wrote a great piece in your newsletter, “Chartbook,” which I subscribe to and others should, too, about what you can tell by how much money we spent on the Iraq and Afghanistan wars without an inflationary problem, without a crowding-out problem. We just spent it. We didn’t pay for it. It’s trillions and trillions of dollars.
We clearly could do that, financially. Although, often, when people wanted to critique the wars, they pretended we couldn’t. They would say, you shouldn’t be building, as John Kerry famously said, firehouses in Baghdad when you need them here at home. I think he said Boston, if I’m not misremembering.
At the same time, I’ve covered economic politics and policymaking in Washington for two decades now, basically. And the number of tiny “tens of billions of dollars” programs I have watched die on the view that we can’t afford them are high. Right now, as we speak,
there is a fight going on in the Democrats’ reconciliation bill over whether or not they will make the child tax credit refundable, whether or not that will go to the poorest families who don’t file taxes. And the argument being made by some is, well, we can’t afford this entire bill, which, of course, costs a lot less, in its totality, than those wars did.
So this is what you’re getting at here, which is that it is convenient to say we can’t afford to do something, rather than to say, I don’t want to do something. But if you actually look at the way we act when we do want to do something, you can see that we often can afford it.
Adam Tooze
Well, exactly. And I think, for me, ultimately, the tragedy of the global war on terror is that that was the one thing that the American political elite, over a period of decades, could, in fact, to a certain degree, at least, agree to do together. Whereas everything else came incredibly hard. And when it came to everything else, the budgetary arithmetic rapidly becomes, as you say, penny-pinching. But when it came to that project, in fact, there was a high degree of unanimity, and the budgets tended to move upwards rather than downwards.
And so the criticism is not so much, really, the criticism of, well, we couldn’t afford this. Look at the damage this will do to the balance sheet in future generations. Though, there will, of course, be a bill to pay. But that bill will circulate within society. Other Americans will get paid, and some foreign investors as well. The real critique should be, the real question should be, how on Earth have we arrived at a point where that is the one thing that we can agree on doing on real scale, as opposed to all of the other projects that we need?
Ezra Klein
So you make an argument in the book that the pandemic was a moment where, at least for a period of time, we could agree to spend. And we did spend at a level we’ve almost never seen before. But even that agreement is now beginning to break down around inflation fears, around party polarization. And we’ll talk about all that in a minute.
But in the past, when the U.S. has decided to spend huge amounts of money, the debate at least hasn’t been framed as purely political. If you go back to 2009, 2010, there had been quite a bit of stimulus spending. Obamacare gets passed in 2010.
And the argument that emerges is this deep fear that we’re going to see interest rates rise, that bond-market vigilantes are going to come, people are not going to want government debt, or that the size of deficits is going to create this thing called uncertainty, and businesses will not hire. They’re not going to invest. They will not create or pursue new opportunities, because they’re going to be so afraid of the future taxation environment or the future spending environment that they won’t feel they have the certainty needed to plan.
And we didn’t really see either of those things happen then, and we aren’t seeing them now. So what went wrong in these treasured theories of fiscal consequence, such that there really was no interest-rate or bond-market or even obvious corporate reaction?
Adam Tooze
Yeah. Your description there summoned up memories of Paul Krugman’s famous confidence fairies. There was this idea that excessively large-scale action would send a tremor of uncertainty, as you say. Radical uncertainty was the great buzzword of the moment.
I think, first of all, it’s really important to say that we’re not there yet, right? So on that timeline you just laid out so nicely, the shock to 2008, 2009. There’s still the scrambling response. The argument over Obamacare begins. Dodd-Frank, likewise. And the austerity turn doesn’t happen until 2010. Another Krugman bon mot, it all went wrong in 2010. So if you run that clock on us now, we really need to worry about what happens next year. That’s where these debates will come.
And I would actually wager money that we will see very similar arguments like that made next year. The question is whether they will be allowed to win out. In Europe, you can already see the battle lines being drawn. There was a memo just, I think, by eight conservative finance ministers yesterday on precisely this issue, saying, it’s time for fiscal consolidation. We need to start worrying about how we achieve a sustainable, credible fiscal framework. And from credibility to confidence to uncertainty — that’s a short step.
So those arguments are yet to be had. But what we discovered in the moment was that you could issue truly epic quantities of debt, like we haven’t seen since World War II, without, what as it were, simple, neoclassical, standard economics. And one should not generalize about economics in a silly way, because it’s a huge discipline full of incredibly bright people. But let’s just accept there’s a schoolbook version. And it would say that if you borrowed a huge amount of money, you would expect the price of borrowing to go up. In other words, the interest rate would go up. And in fact, the opposite happened, right? A huge quantity of money was borrowed, and interest rates have fallen to extraordinarily low levels.
Now, I think it would be presumptuous for me to say that we know, or I know, the answer to why that has happened. It’s one of the great mysteries of economics at this moment. There are a variety of different theories out there, some very long-term theories. People see this as the result of the forces of secular stagnation. Or it could be to do with demographic factors.
But in the moment, in 2020, I think the shock factors are more important. And what we’re seeing is a huge quantity of household expenditure just stopping in its tracks in March and April. So money-market mutual funds, where upper-middle-class Americans put their spare cash, are flush with cash. So if the U.S. Treasury wants to issue short-term bills — not long-term treasuries, which they didn’t do much of in 2020, but short-term bills — there’s a huge appetite for them. They get snapped up by those kind of investment funds.
So in a sense, what the government is doing here is basically stepping into the void left by the contraction of private-sector activity. And if that weren’t enough, the other thing, of course, that’s happening is, the central banks in the U.S., but all over the world — they’re also just gobbling up huge quantities of government debt. They’re buying, on the whole, the Treasuries — so the longer-term, the 5-, 10-, 30-year paper, not the short-term bills which are being absorbed by money-market mutual funds and vehicles like that.
But the combined effect of, as it were, a surge in private saving and a huge sucking noise in the accounts of the central banks — the Fed bought 5 percent of the Treasury market in a matter of weeks. It’s absolutely staggering. That naturally, because it drives the prices of Treasuries up, and the inverse of the price of the Treasury is the yield, or in other words, the interest rate. So as that sucking effect happened in the Treasury market, yields plunged. And we had the topsy-turvy. It was a completely topsy-turvy effect.
And faced with that, bond vigilantes attempting to sell Treasuries because they weren’t feeling like holding them, or they were trying to punish the American government for pursuing a large, expansive fiscal policy — they’re just an irrelevance. It really is men on horseback — the vigilantes on horseback — meet the 101st Airborne or something. They’re just complete disproportion of force. So the entire vision of the ‘90s in which bond markets dominate government fiscal policy, which was very much a thing of, say, the Clinton administration, sort of evaporated.
Ezra Klein
This is really important. To extend your analogy a bit, the reason you weren’t supposed to send the 101st Airborne after the bond vigilantes on horseback was, you’d break the time-space continuum. You’re not supposed to fight the past with the future.
And the idea is that if the central banks began buying up the debt, they would spark, potentially, an inflationary spiral. People understood that central banks could create money and buy debt. And then, in some way, it was unlimited — the amount of debt you could offer — because you would never face a problem in interest rates. But it was believed that there would be all kinds of terrible consequences if you did this. And so in general, they didn’t do it. Or if they did do it, they did it in really weird backdoor ways.
But a story you tell in your book, which I’d like you to tell here, is that during the pandemic, there almost is a true crisis in the Treasury markets. And then the Fed steps in. And their stepping in stabilizes the situation, but it doesn’t set off the secondary crisis. So can you tell a bit more of that story, of what almost happened and then why it was unusual to see the Fed do what they did?
Adam Tooze
Yeah, this is really the hidden drama of March 2020. Lord knows we had enough to concentrate on in March 2020. But there was something truly terrifying happening in the most important financial market in the world.
There are three broad segments of the global financial markets. There’s the equity market, which is what generates so much of the headlines, the buying and selling of shares in Apple or whatever. Then there’s the private corporate-bond market, which is much more boring than shares, where companies like Apple issue debt, which carries an interest rate.
But the really crucial one, where all the macroeconomics, all the argument about inflation and central banks comes to bear, is the market for government debt, so Treasuries. And the most important of all is the American Treasury market. It is, depending on how you count it, somewhere between $17 and $21, $22 trillion worth of debt in various people’s hands.
And the thing about those is that they are like a cash piggy bank. So they yield an interest rate. But the market is huge. And normally, you’re able to sell these for cash more or less instantaneously. You can sell huge volumes of them, and your selling of them — that huge volume — doesn’t affect the price. So in any given day, you know what it’s worth. And you can then liquidate as much as you like. So this is the piggy bank of the global financial system. It’s the source of safe assets.
So that market is crucial for the stability of the whole system. And in 2008, what happened is that as people panicked in investment banks, in mortgage-backed securities, people ran for safety into this debt. And this has a stabilizing effect, because as people run in, prices go up, and interest rates go down. And that’s exactly what the economy needs at a moment of stress.
The terrifying thing that we saw, really starting in the second week of March, starting on Monday night, is that, first of all, that relationship broke down. And people were not just selling equities. They were selling Treasuries as well. And when we say people, what I’m talking about are foreign managers of large dollar-exchange holdings.
Not to get out of dollars, but to get out of Treasuries into cash, investment funds of various types, which, again, invest in a range of things — they had their clients panicking, trying to pull their funds out. It was very difficult to sell shares in those days because equity prices were collapsing. So they sold the next best thing, or rather the better thing, which is easy to turn into cash, which is Treasuries. So they were piling into the market.
And then there were a bunch of hedge funds which had done very complicated trades depending on the future development of Treasury prices, which were now completely upended by this. And hedge funds speculate, so they borrow to own these Treasuries. And when their prices go AWOL, those deals unravel. And then you need to sell quickly because you don’t actually have the money to hold the Treasuries in the first place.
And those three forces together created true turmoil in the Treasury market. So as share prices fell, Treasury prices fell, too. So interest rates were going up. And as the panic began to spread, something even more terrifying began to happen, which is that if you wanted to sell Treasuries, you couldn’t find ready buyers at whatever the prevailing price was. In fact, it was quite difficult to find buyers at any price.
I was talking to somebody in Hong Kong the other day who was telling me that he will never forget, for the rest of his life — and this is how significant this is for financial-market actors — the moment when he tried to sell a couple of billion dollars of U.S. Treasuries and couldn’t find a buyer. Because what that tells you — if there’s no buyer for U.S. Treasuries, as this spins out over the next couple of weeks, the buyers for practically everything else will evaporate, too, because in the end, the Treasury is, as it were, the thing that’s almost as good as cash. And that basic relationship was breaking down.
And if it does fundamentally snap, the problem is that all portfolios in the world are anchored on piggy banks of Treasuries, which are used as the cash equivalent. So you can hold the less-liquid stuff, the stuff that’s harder to turn into cash, because you have this stash of Treasuries, which you can instantly turn into cash. If you can’t, any longer, make that transformation, then the entire portfolio is misbalanced. And really, you have to offload the rest, too.
And so the fear was that this tension in the Treasury market would basically just blitz the entire financial system in the United States and globally. The tremors spread to London in the third week of March, where, basically, the gilt market, which is one of the oldest in the entire world, stopped functioning, according to the Bank of England. And there was stress in Europe as well.
And the answer is — and there’s only one possible answer to a crisis like this — is for a buyer of last resort to simply say, look, anyone want to sell Treasuries? We’re here for you. Here’s the cash. And the only agency that can do that is the Federal Reserve. And so from late March, they were buying a million dollars of Treasuries and mortgage-backed securities a second. They were buying over $70 billion a day for several weeks. And this is just an absolutely shocking intervention in a market that shouldn’t need this kind of stabilization.
Ezra Klein
On one level, that’s very convenient. If the Federal Reserve can pop in and buy as many Treasuries as the Treasury Department wants to offer, that means, functionally, the Treasury Department can issue as much debt as it wants to, and we have the money to do anything we want. So tell me, traditionally, why people did not want the Fed to do this.
Adam Tooze
Well, because what you’re doing is just pumping huge quantities of liquidity into the global financial system. And if you have a simple quantity-theory type view of inflation — in other words, the “back of the envelope” idea that inflation results for more money chasing the same quantity of goods — then this should basically be the trigger for inflation.
And this has been one of the great mysteries of the global economy since 2008, is that we’ve seen successive waves of liquidity pumped into the global economy. And rather than inflation, our problem has, in fact, been lowflation, or even deflation, in the worst case. And that, indeed, was what the central banks had been fighting in 2020, is a slump, the fear of the global economy contracting and prices falling, as they did spectacularly, for instance, in the global oil market in April, where, famously, the price went negative for a day.
Ezra Klein
But that is not the problem now. And this is going to connect a few parts of our conversation. You were saying, a few minutes ago, well, we’re not on the timeline yet by which we began having the austerity fears in 2010. And you’re right. And I think we’re getting there. But we’re not going to get there over deficits and interest rates. It’s going to be over inflation.
We are seeing inflation. We’re seeing concerns from center-left economists like Larry Summers, like Olivier Blanchard, like Jason Furman. There is now an argument as to whether or not it’s transitory inflation, it’s just going to ease up once we get more cars on the market and semiconductors out, or whether or not it’s going to become built into expectations.
So it does seem that we are seeing at least part of one of the feared consequences. And the question is how much to fear what we’re seeing. How do you read what’s going on with inflation in the U.S. right now?
Adam Tooze
Well, I think one can see people joining the dots in those ways. And I actually like your political analysis. I think you’re absolutely right. That is the way this argument is going to run. It’s already begun running, basically.
Ezra Klein
Yes. You already see Joe Manchin, the senator from West Virginia, and Kyrsten Sinema. They are using inflation as an argument for not doing the full, at least, $3.5-trillion budget-reconciliation bill. It is already being used to block further investment.
Adam Tooze
Same in Europe. So inflation rates in Germany popped over 3 percent, and there was a lot of hawkish talk there immediately. On the substance, I think this is not a very convincing analysis. It’s not very convincing, because there are obvious drivers of these spikes in prices, which are from the supply side, on the whole. They are completely out of proportion. In other words, they’re far too small relative to the scale of the liquidity we’ve injected.
And then furthermore, I think there’s every reason to think that they will ebb away over time. Already, in fact, we’re seeing signs that the really rapid surge in inflation that we saw in some sectors at the beginning of the year is decelerating. So month-on-month inflation rather than year-on-year inflation is now much calmer than it was earlier in the year. So if you take the year-on-year measures, you are, as it were, lagging. You’re not quite capturing how rapidly things are calming down.
So I think the jury is out. Obviously, it’s too early to tell. But there is a fundamental reason, I think, beyond, as it were, the empirics, for thinking that there’s very little reason to fear a return to 1970s-style inflation dynamics. And let’s face it. That’s the last time we actually had substantial inflation in the United States or Europe.
And the difference is political economy. In the ‘70s, we had the mechanisms of a wage-price spiral. In other words, we had powerful bargaining partners on each side of the labor market — organized labor on one side, capital on the other. And they became directly involved in price and wage setting. And the entire logic of inflation had a dynamic of acceleration, or at least sustained increases in wages and prices.
This is where the economist preoccupation with expectations really had grip, because you could study wage-setting and price-setting in the ‘70s and see the way in which negotiators would explicitly invoke the track record of inflation to date as a justification for further forward-looking increases in wages and prices. There were even cost-of-living adjustment clauses that built this in automatically.
And we know that the power balance in labor markets has radically shifted. In fact, somebody like Larry Summers started 2020 by publishing a rather brilliant paper on precisely this point. And so it’s particularly surprising, I think, to find somebody like him now arguing what seems like the other side of the same point.
Ezra Klein
Can you say what he said in that paper?
Adam Tooze
Well, he was arguing there that the fundamental unifying fact — if you just had to point to one idea, the grand, unifying theory of political economy, in the current moment — is the shift in the power balance between labor and employers, and that it helped to explain profit margins. It helped to explain inequality. It helped to explain the tendency towards low inflation that we see across most of the advanced economies.
And now, all of a sudden, now we’re in 2021, and he’s concerned about inflation. And yet, the power dynamic, of course, has not shifted. If anything, the position of workers is, in total, weaker than it was before. Now we have an administration which is in the business of trying to shift that parameter.
So you could add that in as a political argument. In other words, the markets reflect the fact that they no longer trust the conservative biases of the Biden administration. In fact, the Biden administration has been quite forward about saying that it wants to shift the power balance. But I think to accord that — the efficacy that that would imply — I think, is to exaggerate. And as you say, the counterargument is operating very powerfully already. In other words, there’s x, y, z we can’t do, because, look. Inflation is happening.
Ezra Klein
And so I want to slow this down just a little bit. So one of the arguments being made here is, in the ‘70s, you have stronger unions throughout the economy. You have contracts being set. And one thing you begin to see built into contracts is wage increases tied to inflation. So that becomes very clear how you get a wages-prices spiral. They begin to go up automatically with each other. But there isn’t that dynamic now. And whatever you might say about the Biden administration, they actually have not passed any legislation that is going to lead to a rapid increase in unionization in the next year or two.
But this then cuts into this whole question of expectations. And I do find, traveling around the inflation debate, that how different economists and people think about expectations becomes really important. And so let’s hold on Larry Summers for a minute, because one of the arguments he’s been making is that it is the very things the Fed is doing that will change inflation expectations.
And I’ll quote here from an op-ed he wrote in the Washington Post where he says, quote, “the Fed used to believe in preempting inflation. Then it announced it would not act until there was evidence. Now it is in a posture of not even beginning to reduce the most generous monetary accommodation in history until presented with conclusive proof of excessive inflation.” And what he’s saying there is, the Fed is doing all this quantitative easing. There is evidence of inflation. But they are treating it so differently now that you have to assume that that is going to change how the market thinks the Fed will act in the future, and thus begin to create more inflationary expectations. What do you think of that argument?
Adam Tooze
It’s an interesting argument. It accords huge power to the Fed. That’s not a plausible story in the economy at large, when you look at price-setting and wage-setting at large. But when you invoke the market, as you did there, what we’re talking about is the bond market.
And I think it’s definitely true that in the loop between the Fed commentators, like Larry Summers and other journalists, and the bond market, there is a kind of extraordinary hall of mirrors in which the Fed’s announcement — that it intends to allow prices and inflation to go above the 2 percent target to offset undershoots — induces a kind of idea of a regime shift. But in a sense, you’ve got to go back to the beginning here. The whole point of the Fed’s announcement was to induce a regime shift, because in the real economy, they judge that protracted periods of low inflation are a very bad thing. And so what, precisely, we need to do is encourage the idea that the Fed, broadly speaking, favors slightly higher inflation rates. That’s the entire point. The argument gets serious when you suppose that if you do achieve that goal, it then becomes runaway.
So the Fed’s announced intention is to try and reset inflation expectations to a slightly higher level. The objection to that, I think, is a serious objection — not when you say, well, they’re trying to reset inflation expectations to a higher level, because the Fed pleads guilty to that — but if you say, ah, and then I see a dynamic which could produce escalating inflation, ever-greater tension, panic in the bond market. That would then cause the necessity for some sort of very painful action, and that would be very bad. I think that’s where the argument is.
So then the question is not, will this reset inflation expectations? The intention is to do that. The question is, will they become unstable? Unanchored is the phrase that’s used. And I don’t really see why anyone should think that. And if you look at the bond markets, which, through their pricing of interest rates, give us an idea of what the really big money thinks inflation is going to be, we can read it off the interest rates that you get for investing at different maturities. There’s not much evidence in the bond market for that kind of panic.
And the Fed itself, which, after all, is one of the great centers of data processing about the economy, is also fairly confident, I think, that the inflation shock is transitory. They’re not totally on a consensus about that. And there are bits of the Fed say, the Dallas Fed would like to go begin tightening a little bit sooner. But nevertheless, their general position is one of being reasonably relaxed.
So I think that’s the gamble, right? The gamble is, yes, we want to get to a slightly higher level of inflation. And we think we can do that without this becoming runaway. And the good reason for thinking it’s not going to become runaway is, the fundamental political economy is really different, and the position of workers is much weaker. And that’s actually kind of a bad thing, really. And if it did, in some way, in some degree, shift the advantage in favor of workers, well, that will be a good problem to have. And we’ll address it when we get there.