Inflation heresy mustn’t always be rejected out of hand
SummaryConvention dictates that fiscal and monetary tightening works best against inflation, but we must not dismiss unorthodox ideas like rate cuts to lower the cost of capital or price clamps
The spectre of inflation is once again stalking the world, after a long period of dormancy. Old debates have resurfaced on how best to restore price stability. Should policymakers step on the monetary and fiscal brakes, by reducing spending and raising interest rates—i.e., the orthodox approach? Should they instead move in the opposite direction by lowering interest rates, a route taken by Turkey under the direction of President Recep Tayyip Erdoğan? Or should policymakers perhaps try to intervene more directly, through price controls or by clamping down on large firms with price-setting power, as some economists and historians in the US have argued.