The Fiscal Theory of the Price Level and Inflation Episodes
&gt; “The current inflation episode is just the kind of event that the fiscal theory of the price level can easily describe. It’s simple. The US government printed up about $3 trillion of money and sent people checks. It borrowed an additional $2 trillion of money and sent people more checks.” — John H. Cochrane, Senior Fellow, Hoover Institution, Stanford University<p>What is this? It&#x27;s not like inflation was in the market for an explanation. It&#x27;s already pretty well understood. We literally have a giant gaping deficit in supply for three very obvious reasons, 1. the pandemic ramp down-up, 2. the war which took out a very large part of energy, grain and other essential commodities, 3. tight labor market (&quot;Great Resignation&quot; anyone?). If anything, this situation vindicates MMT and other theories because over decade of free money and varying debt had no impact yet inflation started <i>as soon</i> as we got a perfect storm of pandemic, war and tight labor market. It sure took a lot to cause a crisis if QE and the pandemic alone weren&#x27;t enough, we had to add a war and a labor market so tight that it allowed for a renaissance in unions and the Great Resignation.<p>&gt; That’s actually a little more troublesome because there was a big deficit. And that one did not send inflation up. Everything’s hard to read in real time, but we can at least point to a couple of things. First, that was an economy with depressed demand. Whether extra aggregate demand spills into inflation depends on how the economy is doing. So, in 2008, there was arguably room to stoke aggregate demand to increase output.<p>Hmm gee, it&#x27;s almost like it&#x27;s an independent variable and your hypothesis was <i>falsified</i> over a very long period of time. Also they ignored every other country? There&#x27;s a huge variety in debt-to-GDB ratios globally[1], yet somehow everyone is experiencing the exact same rates of inflation... almost as if it was for some common material reasons.<p>1. <a href="https:&#x2F;&#x2F;worldeconomics.com&#x2F;Debt&#x2F;" rel="nofollow">https:&#x2F;&#x2F;worldeconomics.com&#x2F;Debt&#x2F;</a>