Why governments should keep spending, and stop worrying about inflation | Leah Downey

Why governments should keep spending, and stop worrying about inflation | Leah Downey

Many believe it's actually the expectation of inflation that causes prices to rise

People have been freaking out about inflation. Recent numbers from the UK and the US seem to have confirmed their fears. Prices are clearly rising. Anyone trying to build a house or do up their garden for the summer can attest to that. The question is, are they rising because of lockdowns, Brexit and the big, marooned ship or are they rising because, on both sides of the Atlantic, we've over-egged our fiscal response to the pandemic?

Before we conclude "it is clear that inflation is here“ we should think long and hard about what is causing prices to rise and who has the ability to influence that trend. The prevailing narrative is that inflation is the product of overly "ambitious government spending“. The chancellor, Rishi Sunak, has expressed these fears. And the former US treasury secretary Larry Summers said of President Biden's spending proposals: "I'm concerned that what is being done is substantially excessive.“