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PAUL KRUGMAN OPINION ... PAUL KRUGMAN ... The Perverse Politics of Inflation 
Credit...Luke Sharrett/Bloomberg Original article: https://www.nytimes.com/2022/06/02/opinion/inflation-biden.html Peter Burgess COMMENTARY Paul Krugman is a Nobel Prize winning economist. The work that gained him a Nobel Prize has little to do with the writings that he produces now for the New York Times and others. There are a huge number of policy options that countries can implement to manage the prices at the pump. Most of Europe is paying much more for energy products at the consumer level than what US consumers are paying. This mainly because European governments are taxing energy products at a much higher rate than in the USA and have been doing for decades. Americans choose much bigger gas guzzling vehicles than Europeans because in relative terms gas has been cheap. Big energy companies not only carry out production and service activities in the supply chain for energy, but they also actively trade in energy products which serves little in terms of net value add for the economy, but it does concentrate profit more and more within the insider community. There is similar energy trading within the financial sector that also serves to concentrate profit within the banks and financial institutions without doing anything to improve production and productivity. Peter Burgess | ||
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OPINION ... PAUL KRUGMAN ... The Perverse Politics of Inflation
June 2, 2022 Written by Paul Krugman ... Opinion Columnist On Monday, Eurostat, the European statistical agency, released a preliminary estimate of euro area inflation for May, and it was a shocker: 8.1 percent over the preceding year, 0.8 percent — about 10 percent at an annual rate — for the month. Europe’s preferred measure of inflation doesn’t correspond exactly to America’s Consumer Price Index, and when you use a comparable measure, U.S. inflation has generally been running even higher. But the bad European inflation news comes in the wake of modestly good or at least better U.S. news, so at this point it’s arguable that Europe has an inflation problem as bad as or worse than ours. True, some economists argue that the U.S. inflation problem is more fundamental than Europe’s. I’ll get to that in a minute. But here’s the thing: Voters don’t care about economists’ estimates of underlying inflation; they care about the prices they pay, especially the prices of highly salient goods they buy on a regular basis. That is, voters aren’t saying, “Trimmed mean P.C.E. inflation is too high because fiscal policy was too expansionary.” They’re saying, “Gas and food were cheap, and now they’re expensive.” And there’s truth to that complaint. But the lesson from Europe’s bad inflation report is that these are precisely the prices over which President Biden, or actually any president, has almost no control. Take the case of prices at the pump. Gas prices in the United States have more than doubled under Biden; as of last week, they were about $2.40 a gallon higher than they were in the last week of December 2020. But gas prices in Europe have risen by almost exactly the same amount; actually, after converting from liters to gallons and euros to dollars, I estimate that pump prices in Germany rose $2.80 a gallon over the same period. This common rise in prices is no accident: Oil is traded on global markets, so its price has risen by roughly the same amount everywhere. The same is true of major foodstuffs. So when people say — as they do — that gas and food were cheaper when Donald Trump was president, what do they imagine he could or would be doing to keep them low if he were still in office? OK, he probably wouldn’t have supported Ukraine, might even have tacitly supported Vladimir Putin’s invasion, and if the Russian flag were currently flying over Kyiv, world fuel and food prices would be a bit lower than they are. But I don’t think buying lower inflation at the expense of Ukraine’s freedom is what Trump supporters have in mind. Does this mean that Biden and U.S. policy makers bear no responsibility for inflation? No. While much inflation reflects global shocks to energy and food, plus special pandemic-related disruptions — who imagined that used car prices could play such an important role? — America probably has an underlying annualized inflation rate of 3.5 to 4 percent, up from the 2 percent norm. This underlying inflation probably reflects an economy that’s running unsustainably hot, which in turn partly reflects an overlarge fiscal package at the start of Biden’s presidency and the Fed’s failure (which I shared) to recognize the problem early enough. On the other hand, overheating isn’t unique to the United States. While some economists believe that European inflation is almost entirely due to transitory disruptions — something many people, myself included, wrongly believed about the United States a year ago — my read of recent European data suggests that it has also seen a rise in underlying inflation, despite not having pursued U.S.-type fiscal expansion. Notably, even European prices excluding energy and food rose 3.8 percent over the past year. In any case, as I already suggested, voters aren’t poised to punish Democrats for underlying inflation; they’re angry about gasoline and food prices, which no rational analysis would say are Biden’s fault. So what can Biden do? From an economic point of view, the most important thing is his pledge not to lean on the Federal Reserve, to allow the Fed to do what it must to cool off the economy. What about going after corporate price gouging? I’m much more sympathetic than most economists to the view — widely held by the public — that some companies are taking advantage of widespread price increases to further exploit their monopoly power. And I don’t think things like holding hearings on price gouging do any harm, as long as the Fed is allowed to do its job; that might even help a bit. But gouging is probably a small factor in overall inflation. So should Biden officials be out there pointing out that the price rises bothering consumers most are global phenomena, not the results of U.S. policy? Yes, of course, not least because it’s the truth. And I hope media reporting will make the same point. But the old line “If you’re explaining, you’re losing” surely applies. Democrats may be able to blunt the damage from inflation, but realistically they won’t be able to win the kitchen-table argument by November. For now, Democrats need to run on social issues — and against the threat the modern G.O.P. poses to democracy and basic American values. More on inflation Opinion | Ro Khanna There Is Way More Biden Can Do to Lower Prices June 2, 2022 Opinion | Peter Coy High Gas Prices Are a Problem. But Let’s Not Moralize About It. May 23, 2022 The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com. Paul Krugman has been an Opinion columnist since 2000 and is also a distinguished professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman A version of this article appears in print on June 3, 2022, Section A, Page 22 of the New York edition with the headline: The Perverse Politics of Inflation. 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