‘Team Transitory’ Was Wrong on Inflation

Alan Blinder’s revisionist history doesn’t wash

Letters to The WSJ.

"Alan Blinder argues that “Team Transitory Had a Point About Inflation” (op-ed, July 20). He’s right that supply-side factors made inflation worse than it otherwise would have been. But he’s wrong that these factors were the primary cause of price hikes.

First, aggregate demand (total nominal spending) is clearly elevated from its prepandemic trend. This can be explained only by some combination of stimulative fiscal and monetary policies.

Second, if supply problems caused inflation, we should now experience outright deflation. Bottlenecks have eased; many prices are falling. Yet all we’re getting is slower inflation.

Third, Mr. Blinder overstates the importance of the Ukraine war. Consumer price inflation started rising more than a year before Vladimir Putin’s invasion. Further, volatile food and energy prices can’t explain why core inflation remains elevated.

Mr. Blinder concludes with a not-really mea culpa: He “overestimated the capabilities of competitive capitalism . . . to alleviate the bottlenecks.” Actually, inflation shows that markets are working the way they’re supposed to. Rising prices are a signal that goods are increasingly scarce relative to money. It isn’t the thermometer’s fault it’s hot outside.

Prof. Alexander William Salter

Rawls College of Business, Texas Tech

Lubbock, Texas" 

"Mr. Blinder ends on a positive note, suggesting that the recent significant reduction in the inflation rate has been accomplished “without any appreciable slack in the economy.” While the professor may not consider real earnings to be part of “slack,” I suspect most households would. Data from the St. Louis Federal Reserve Bank show median weekly real earnings fell 9% in the two years from Spring 2020 to Spring 2022. In the past year only 1.7% of that loss has been recovered. At this pace, it will take four more years for real earnings to recover to their Spring 2020 level. The “appreciable slack” households will continue to feel is in their standard of living.

Em. Prof. Michael L. Walden

North Carolina State University

Raleigh, N.C."