Plain English with Derek Thompson Could Putin’s War Crash the U.S. Economy?
Mar 22, 2022
In this discussion, Jason Furman, former chief economic adviser to President Obama and a Harvard professor, tackles the U.S. economy's current turmoil. He explores the confluence of inflation, rising gas prices, and the geopolitical crisis stemming from the Ukraine war. Furman discusses the Federal Reserve's struggle to manage inflation without tipping the economy into recession. He draws historical parallels to the 1970s and evaluates fiscal policy options that the Biden administration might consider in these turbulent times.
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Why Inflation Is Bad
- High inflation, especially when rising and uncertain, makes people unhappy.
- It also causes prices to rise faster than wages, leading to a decrease in purchasing power for workers.
Macro Perspective on Inflation
- The main driver of inflation isn't individual items but an increase in demand.
- Supply increased, but not enough to meet the heightened demand, causing prices to rise.
Temporary vs. Persistent Inflation
- Temporary price increases, like those in gas or food, often resolve without lasting impact.
- The real danger is that temporary inflation becomes persistent if expectations shift.