We Need to Talk About Inflation: 14 Urgent Lessons from the Last 2,000 Years

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As with all the best economists, King’s views are grounded in an understanding of our historical experience.”—Roger Bootle, Daily Telegraph And this is what the real income per capita numbers hide: large bouts of inflation create extreme winners and losers in quite undemocratic ways. Asudden bout of inflation obviously makes those on fixed incomes or stable government benefits alot worse off, while those for whom wage increases occur only infrequently see their purchasing power collapse. On the other hand, those who can borrow heavily and invest the funds in physical assets and real estate, or who have alot of pricing power over their labor, can often come out of inflationary periods sitting (relatively) pretty. These effects are often arbitrary and politically explosive. Most of those who have to deal with inflation are too young to remember when it was last a serious issue. This book teaches them what they need to know. King’s lessons command our attention.”—Lawrence H. Summers, former US Treasury Secretary

From investors and monetary authorities to governments and policy makers, almost everyone had assumed inflation was dead and buried. But now people the world over are confronting a poisonous new economic reality and, with it, the prospect of vast and increasing wealth inequality. Some interesting conclusions though. In King’s view the argument used by central banks against tightening, that it was all just ‘transitory’, was fuelled by central banks having presided over a low inflation environment for nearly two decades, falling victim of their own anti-inflation propaganda. As a result, serious mistakes were made when circumstances suddenly changed. We saw the impact of the supply and demand imbalances when Covid restrictions ended and then the extra pressures on energy and food prices with the war in Ukraine. But in King’s view the reappearance of inflation in the last couple of years was not just “a series of unfortunate events” but should have been seen by central banks and acted upon more swiftly. Policymakers are not easily able to distinguish inflationary squalls from periods of inflationary persistence Everything you wanted to know about inflation but were afraid to ask. This book is timely, well-researched and very well-written.”—Mervyn King, former governor of the Bank of England Airlines have merged from 12 in 1980 to four today, which now control 80% of domestic seating capacity.Third, are inflationary risks trivialised or excused? It took 2.5 years for the annual rate of UK inflation to rise from 0.3 per cent to 10 per cent: yet, throughout that period, the Bank of England persistently forecast that inflation would return to the 2 per cent target within two years. Why not? Industry experts say oil and gas companies saw bigger money in letting prices run higher before producing more supply. They can get away with this because big oil and gas producers don’t operate in a competitive market. They can manipulate supply by coordinating among themselves. Since the 1980s, two-thirds of all American industries have become more concentrated But none of this responds to the deeper structural issue – of which price inflation is a symptom: the increasing consolidation of the economy in a relative handful of big corporations with enough power to raise prices and increase profits. A ‘rules-based’ policy framework is important: the public need to know how policymakers are likely to respond

The book is genuinely interesting throughout, yet also wide‐​ranging, so choosing sections to review is difficult. But three areas where King has alot of particularly interesting things to say are on how policymakers might think about inflation’s persistence, why inflation matters, and the difficulties of alleviating modest inflation. Germany famously suffered aterrible hyperinflation in 1922–1923, with a monthly inflation rate of 322 percent. Yet, remarkably, German real incomes per capita fell only 7.8 percent between 1918 and 1923, considerably less of adecline than seen in the United Kingdom over the same period. In other words, even though prices were shooting up, so were nominal incomes—at least across the economy in aggregate.Counterintuitively, King argues that defeating hyperinflations may be easier than the more modest inflation that we see today. The damage of extreme hyperinflations is so obvious and typically is the result of acomplete breakdown in monetary discipline. As aresult, policymakers and the public are eventually more accepting of the strong medicine needed to bring hyperinflation to an end. Acredible push to implement the structural changes needed to eradicate it are unlikely to run up against many hyperinflation “enthusiasts.” Boeing and McDonnell Douglas have merged, leaving the US with just one large producer of civilian aircraft: Boeing. A damning critique. . . . King writes lucidly, avoiding the jargon that makes economics impenetrable to the lay reader.”—Edward Chancellor, Times Literary Supplement Celebrated economist Stephen D. King-one of the few to warn ahead of time about the latest inflationary upheaval-identifies key lessons from the history of inflation that policy makers chose not to heed. From ancient Rome through the American Civil War and up to the asset bubbles of today, inflation stems from policy error, sovereign greed, and a collective loss of faith in currencies. But they’re raising prices even as they rake in record profits. How can this be? They have so much market power they can raise prices with impunity.