The current moment of high inflation is something investors should welcome, says Brad DeLong, a professor at UC Berkeley and one of the top financial historians and economists in the country. In an interview with Fortune, he maintains that there is a significant shift in the economy occurring that people should look upon favorably instead of worrying so much about it.
20 years of economic change have been squished into 2 years, DeLong says; more remote work and much higher rates of production were fueled by the pandemic. And the inflation that is a top concern for so many people is actually serving two purposes that could prove helpful in the long run: boosting expansion in sectors that have big growth potential, and identifying and fixing supply chain snags that have been bothersome for years. While unemployment is at a historic low, full employment will look different than pre-pandemic; economic incentives such as higher wages will be needed to entice workers into expanding sectors, and that’s driving inflation too. And the natural rate of inflation would have to be above 2% in order to “get production and distribution and transportation into an efficient allocation,” DeLong told Fortune.
However, DeLong does admit to a caveat to his optimism: “if inflation gets entrenched in expectations,” it could lead to a stagflation situation, where high inflation intersects with slowed economic growth. While that would be a worst-case scenario, “entrenched inflation” is something that the Fed is desperate to avoid. But whether or not that will happen is reliant on which way gasoline and energy prices go, and those have been very unpredictable so far this year.
But some economists have cautioned that inflation is already becoming entrenched, and disagree with DeLong’s assessment that there is anything good about the current inflation, the article details. Many have been outspoken in their criticism of the Fed’s actions that led to inflation and could result in a deep recession by next year. Even DeLong admits that the war in Ukraine and unsteady energy markets are “greatly complicating the picture and making the situation much more fraught,” he told Fortune.