However, since the first half of 2021, U.S. inflation has increasingly outpaced inflation in other developed countries. Estimates suggest that fiscal support measures designed to counteract the severity of the pandemic’s economic effect may have contributed to this divergence by raising inflation about 3 percentage points by the end of 2021.
That is from a recent San Francisco Fed piece by Òscar Jordà, Celeste Liu, Fernanda Nechio, and Fabián Rivera-Reyes.
I recall not so long ago when the overwhelming majority of Democratic-leaning economists on Twitter and elsewhere strongly favored the additional $2 trillion in stimulus. In the campaign, it was a kind of electorally defining policy of the Biden administration. I also recall that Larry Summers explained in very clear terms why this was the wrong policy, and hardly anyone listened. “Progressive catnip” is the phrase I use to describe such policy options. It involved “stimulus,” “sending people money,” and it “boosted demand,” all popular catchphrases of the moment. It was seen as part of a broader push simply to be sending people money all the time.
This has to count as one of the biggest economic policy failures of recent times, and we still are not taking seriously that it happened and what that implies for our collective epistemic capabilities moving forward.