Book Reviews: Unwelcome Return

Source details

Author of the reviewed book: economist Stephen D. King.
Central contention: current inflation is not primarily the product of a few shocks—pandemic-induced supply chain snarls or Russia’s invasion of Ukraine—but rather systemic problems in economic policy in recent years.
Key policy mechanisms King criticizes:
- Central banks adopted frameworks that bias them toward inflation.
- Quantitative easing became “totally addictive.”
- Policymakers believed “their own anti-inflation credibility more or less guaranteed that inflation expectations would remain well behaved.”
- Central banks are far less independent than they appear and are subject to pressure to do the bidding of fiscal authorities.

Inflation’s historical recurrence emphasized with examples including:
- French assignats
- US greenbacks during the Civil War
- Weimar’s hyperinflation
- Roman coinage and medieval debasement
- The 1970s (noted repeatedly as freshly relevant)
- Very recent history: Britain’s mini-budget crisis
Cultural reference: Earnest Jackson’s 1975 funk song “Inflation” cited as resonant with today’s conditions.

Strengths:
- Makes the case with verve and vivid historical snapshots.
- Underscores the pernicious effects of inflation and the absurdity of thinking it could never reappear in advanced economies.
- Affirms that “inflation must be tackled, head-on and without hesitation.”
Limitations and contestable points:
- Argument may lack empathy for real-time policymaking challenges during a once-in-a-century pandemic.
- Some forward-looking recommendations lack specificity:
- Which “rules-based” policy framework does King favor?
- What precisely is meant by calling for “monetary dominance” over fiscal policy?
- Readers seeking a systematic treatment of inflation over the past two millennia will need to look elsewhere.

General policy positions presented or endorsed in the review of King’s book:
- Price and wage controls are rejected: they are “bad in theory and worse in practice.”
- Immediate and vigorous action to combat inflation is necessary.
- Awareness that inflation has massive distributional consequences that can be unfair and undemocratic.
Forward vigilance:
- The most important lesson: monetary history matters.
- Central bankers have “gotten the message,” raising rates at a rapid clip.
- Simultaneous vigilance against deflation is necessary: history is replete with examples of the pain caused by declining prices, and policymakers should avoid forgetting those perils.

F&D Magazine
Unwelcome Return
MAX HARRIS
June 2023
MAX HARRIS is senior fellow at the Wharton Initiative on Financial Policy and Regulation.
Disclaimer: “Opinions expressed in articles and other materials are those of the authors; they do not necessarily reflect IMF policy.”

F&D Magazine — Unwelcome Return — MAX HARRIS — June 2023

Unwelcome Return
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