- June 25, 2022
- Posted by: Stratford Team
- Category: Economy
It is a truth universally acknowledged — well, anyway, a truth acknowledged by everyone I know who thinks about the subject — that a hot economy leads to higher wages and prices. When demand for labor is strong, workers can and do demand wage hikes; when demand for goods and services is strong, businesses have “pricing power,” or the ability to raise prices without losing customers.
But does a hot economy lead to a higher level of prices? Or does it lead to a higher rate of change in prices, i.e., ongoing inflation? Or maybe even to accelerating inflation, a higher rate of change in the rate of change?
These may sound like abstruse questions, but they aren’t. On the contrary, they have frequently been at the heart of debates over economic policy; they are, in fact, central to current debate. Yet I’m not sure everyone writing on economics right now understands these distinctions. Nor am I even sure that all academic macroeconomists are fully…
