Understanding Inflation.

• Author: Bourne, Ryan
• Position: We Need to Talk About Inflation: 14 Urgent Lessons from the Last 2,000 Years

We Need To Talk About Inflation: 14 Urgent Lessons from the Last 2,000 Years

By Stephen D. King 240 pp.; Yale University Press, 2023

Writing economics books on contemporaneous policy issues is a tough game. You are torn between three types of discussion: using history to illuminate the present, writing educationally to inform the broader public, and trying to use the platform to critique policymakers' thinking and improve outcomes. Few authors can hit all three in one text, particularly on something as contentious as macroeconomic policy. But that's the ambition of We Need To Talk About Inflation by Stephen D. King, a British economist who until 2015 was the chief economist at the multinational bank and financial services firm HSBC. The result of his effort is a triumph.

At 183 pages excluding notes, the book is brisk but wide-ranging, superbly written, and full of insight. It somehow manages to cover the theories of inflation, the role of governments in causing inflation, the economic history of inflation, the damage of inflation, the failures of price controls, debates on how to curb inflation, and the pros and cons of inflation-targeting regimes. He does all this without resorting to dry academic analysis or a priori reasoning. Instead, the ideas are largely illuminated through stories and examples, drawing on events as varied as the Roman price controls of 301 A.D. and today's debates about the causes of the 2021-2022 inflation spike.

King is not a strict adherent to any macroeconomic school of thought. For a general reader, the book is better for avoiding such dogmatism. That said, it is clear where his sympathies lie. Milton Friedman and Anna Schwartz were largely correct that inflation is a monetary phenomenon, he says. Yes, supply shocks can lead to jumps in the price level, but inflation's persistence ultimately depends on accommodating those shocks through looser monetary policy. But this belief that "money matters" must be buttressed by a recognition that shifting public trust in money can lead to wild swings in its volatility. As inflation really takes off, people want to reduce their real money balances and buy up other commodities, causing price inflation to soar further. This increase in velocity contributes to inflation even when the money supply is growing relatively slowly. That is a key part of the stories of hyperinflationary collapses--edge cases that help us illuminate the harm inflation causes.

The book is genuinely interesting throughout, yet also wide-ranging, so choosing sections to review is difficult. But three areas where King has a lot of particularly interesting things to say are on how policymakers might think about inflation's persistence, why inflation matters, and the difficulties of alleviating modest inflation.

New tests/ King began to warn of inflation's return in early 2021. Having subscribed to the mainstream view that inflation had largely been conquered by independent central banks through the 2010s, his thinking coalesced around four fears.

First, he wondered whether the price-depressing effects of globalization in the past had flattered central banks' actual inflation-fighting record and foresaw that some of those benefits of...