Economist predicts inflation, even price controls, in 2022
By Theresa Opeka
Whether it’s filling up at the pump, paying more for goods and services, or not finding your favorite item on grocery store shelves, there’s no denying that inflation and supply chain issues supply have affected everyone in one way or another. Mike Walden, professor emeritus of economics at North Carolina State University, said prices unfortunately seemed to get worse before they got better.
Walden said inflation was the worst in 40 years and was blamed on supply chain issues. But it’s also because more than $5.5 trillion has been injected into the economy by the federal government in the past two years, more than at any other time. He said that normally during a recession, like the one that happened with COVID, there would be spending cuts, but not this time. Consumers are out of money, savings rates have skyrocketed and the retail sector is at an all-time high this Christmas.
“As the economist Milton Friedman said, ‘too much money for too few goods and services,'” Walden told John Locke’s Shaftesbury Society on Monday. “People ask me if we’re going to pay for all the extra money handed out over the past two years. I say we are already with higher prices. The supply chain won’t be fixed for four or five months.
According to Walden, inflation for most of 2022 is expected to be above 4%, down from the most recent 7% but above the 1-2% we’ve been used to in recent years. The Biden administration basically “kicked the box” when it initially said inflation didn’t exist, then said it was transitory and blamed certain sectors of the economy, like meat processing plants, not having enough competition.
“I can see them taking the next step,” he said. “At the end of the summer, if the midterm elections turn out to be a disaster, inflation continues to climb, the president and his people are pushed back, I see him stepping in and doing a ‘Richard Nixon’ with price control.”
Although he has no inside information, Walden said price controls would be the next logical and disastrous step for the economy. In 1971, the Nixon administration instituted price controls. Once they were removed, the prices went up again.
It took the intervention of the Federal Reserve to improve the situation.
« Jay Powell, recommended by Biden [for the Federal Reserve chair] said they would raise interest rates starting in March and throughout the year,” Walden said. “I’m watching the Federal Reserve put the brakes on the economy. Do they put them in place enough to slow it down to reduce inflation, or do they put the brakes on too hard and bring the economy to a screeching halt and later in 2022 we have a recession I think that’s an obvious possibility.
Other economists who study this in depth say that interest rates cannot be raised by a quarter or half a percent, but can be raised by 3 percentage points, which would drive up mortgage rates. to 6% and would likely cool the economy.
The late Paul Volcker, former Federal Reserve Chairman of Presidents Jimmy Carter and Ronald Reagan, tried to end inflation by curbing the economy, triggering a deep recession. He eventually brought inflation down to moderate levels for 30 years.
If the Fed is serious about reducing inflation, Walden suggests it should take steps to show the markets this by raising interest rates to as much as 3%.
You may also find that some shelves in the grocery store are still empty. Walden blamed the job, or lack thereof.
“You ask anyone in any part of the supply chain and nine out of 10 will say it’s labor,” Walden said. “Also, with another bout of the virus, a lot of people are scared to go back to work. People are told they can’t go back to work until they’ve been vaccinated. I think right now it’s tied to labor constraints, some of which are self-imposed in the economy.
The service industry is suffering from labor shortages, particularly in the restaurant and hotel industry. Walden thinks many of the former workers in this industry have “improved,” especially the younger ones, who have gone back to school and are now working in fields like health care and information and earning better wages.
An unusually high number of retirements this year has also contributed to the shortage. These factors mean that even when COVID reaches a more manageable level, industries may still have staffing issues and will likely consider streamlining or automating some jobs.
Although we are still able to continue financing the national debt, there is a sign that means trouble. “Watch the international value of the dollar,” Walden said. “If it starts to fall and continues to fall, that’s a sign that we’ve significantly overdone it with the debt.”