University of Chicago Professor of Economics, and economic adviser to former Democratic President Barack Obama, Austan Goolsbee, told Newsmax Tuesday the Democratic spending bills being considered, and passed, in Congress should not have that big an impact on inflation, calling that argument against passing them a “red herring.”
If you pay for spending with higher taxes, it doesn't have an impact on inflation,” Goolsbee said during “American Agenda” Tuesday. “If you spread it out over 10 years, it has even less impact on inflation. So, I think we should evaluate the content of bills like “build back better” on the merits, not about the impact on inflation, because I think that's kind of a red herring.”
Goolsbee said the $1.2 trillion bipartisan infrastructure bill, which Biden signed into law Monday, and the approximately $2 trillion budget reconciliation bill currently making its way through Congress, will likely not make inflation worse by itself, although the country will be dealing with higher prices for at least “months.”
“We have had high inflation, and we’re likely to be dealing with that, even for ‘team temporary,’ they believe that that will last months, not weeks,” he said.
Goolsbee said the record inflation right now is more a result of the pent-up demand for goods caused by the COVID-19 pandemic, creating the supply chain bottlenecks around the world, leading to higher prices for goods.
“It's a global supply chain. You've got all the countries of the world trying to come booming back all at the same time, which doesn't usually happen,” he said. “Because of the virus, you've had a really unprecedented shift of what Americans are spending their money on, away from services towards physical goods.”
He said once spending on services “goes back to normal,” inflationary pressures should ease.
“We need to get back to a normal spending pattern where people are spending more money on services less on physical goods, because the massive, unprecedented, spending on physical goods is straining the global supply chain everywhere in the world,” he said. “If we can get more services spending without leaning on the vaccine, without getting control of the virus, that be great, too, but we know for a fact that in places where they get control of the spread of the virus, they start shifting more back to spending on service.”
Fellow economist, Wendy Edlberg, director of the Hamilton Project, and a senior fellow of economic studies, published an article on the Brookings Institution website Tuesday that echoed Goolsbee’s beliefs about inflation.
“To examine whether this short-term run up in inflation points to higher inflation in the years ahead, I look at the factors that appear to be contributing,” she said in the article. “I find that the strength and composition of consumer demand for goods since the pandemic began as well as supply constraints caused by the pandemic are the sources of the current spike. The clearly temporary nature of those factors suggests we should not extrapolate recent inflation pressure into the future.”
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