Shock Values: Prices and Inflation in American Democracy

"The big economic story of the last four years has been the rise and fall of inflation. This is not the first time that inflation has dominated the national conversation or affected politics. Carola Binder, an economics professor, offers a history of inflation and monetary institutions in the United States, studying how they have affected politics, reshaped economic institutions, and upended economic theories. The book has several themes: inflation and disinflation has had a distributional aspect, helping some groups and hurting others; unexpected changes in purchasing power and the value of debts have affected contracting and due process; inflation crises have expanded the role of government; and modern inflation targeting has deep historical roots. The biggest impact has been that incumbent parties have lost everywhere and inflation is almost certainly part of the problem. High price levels are also still with us. To the degree that wages adjusted upwards by a commensurate amount that does not necessarily matter—if you add a zero to all prices then everything will be the same. But wages do not seem to have fully adjusted, at least not yet, leaving workers somewhat behind. There is evidence that going through high inflation permanently changes the mentality of policymakers but so far that is hard to see as politicians around the world are continuing to push inflationary deficit increases while, in some cases, trying to push their central banks to take steps that would increase inflation still further. The problem is that it is always tempting in the short run to undertake policies that just result in added inflation in the long run—which is why the types of institutional arrangements that Binder describes in her book have been so important in overcoming the natural tendencies of politicians."