The NZ Herald's Business Editor, Liam Dann, asserts that National Party Leader Luxon's linking of high government spending to inflation is a marketing ploy without substance. According to Dann, it is politics, and Luxon is merely selling a fictional "story" which he is skilled at doing due to his time selling "brands" at Unilever. Like Persil. Just over a week ago, Newshub ran a story saying the ACT Party Leader's similar claims were "lies" and "economic illiteracy". The Herald's Business Editor writes:
"Some on the Left argue that National's over-emphasis on government spending as an inflation driver is evidence of economic illiteracy. To me, it looks more like evidence of Luxon's strength at selling a story. His time in business managing retail brands for global food giant Unilever and at Air NZ have made him a highly savvy marketer. He has a clear simple line. And he's going to keep repeating it. That's just politics".
So what does Larry Summers (President Clinton's US Treasury Secretary, President Obama's Director of the National Economic Council, former Harvard President and, when he was younger, winner of the Best Economist in the US under the age of 40) say is driving inflation? It's relevant to NZ since, according to Dann, the factors affecting Kiwi inflation are similar to those in the US & other nations: "We can't control the primary driver of inflation - global supply", says Dann.
So here's Summer's interview with the Harvard Gazette:
SUMMERS: "I’m not sure we would have the inflation if there had never been a pandemic and, even if there had been a pandemic, without the overwhelming stimulus that was applied well into recovery - during 2021 .. I have been critical of the Fed for the better part of a year on its failure to recognize that inflation became, as of last spring, the most serious short-run threat facing the American economy".
GAZETTE: I’ve heard concerns about a return to 1970s stagflation. Is there an era that you think would be a good analogy for what we’re going through today?
SUMMERS: "I was arguing through 2021 that the right analogy was the Vietnam War period, when we used very expansionary fiscal policy, did not apply monetary restraint, and pushed inflation up very, very substantially. I think that now looks to have been a reasonable description of what happened in 2021.
I am nervous about the analogy between many things that are being said today and what was said during the early and mid-1970s. People resisted the idea that inflation was being caused by loose monetary policy in favor of pointing to specific factors. People talked about oil prices .. They talked about a variety of structural factors, much as many economists are today. In the end, it looks like we made a mistake in the 1970s, which was failing to appreciate that ultimately, higher demand translated primarily into increased inflation".
So Larry Summers concurs with Chris Luxon and not Liam Dann, nor the RBNZ Governor and Finance Minister, who are the ones making the "mistake", according to his view.
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