Have We Been Thinking about Inflation All Wrong?

By Max Fawcett  Updated 16:46, Dec. 6, 2021 | Published 12:27, Jul. 30, 2021

For decades, governments have done all they can to keep inflation down. But maybe letting things run hotter is exactly what we need

WHEN IT COMES to revolutionaries, the well-dressed employees who work in the Bank of Canada’s granite office building at 234 Wellington Street in Ottawa probably aren’t near the top of anybody’s list. And no wonder: for as long as central banks have existed, their job has been to maintain the stability of our economic system.

That means controlling inflation, which can raise the price of everything from food to housing and, if allowed to run rampant, badly damage an economy. For the better part of the last thirty years, they did that masterfully—so masterfully, in fact, that people more or less stopped worrying about inflation at all.

But now, after a year in which governments and central banks did everything they could to stave off economic collapse, the inflation fears are back. That’s because if there’s one thing most economists agree on, it’s that making money too cheap and too widely available for too long should, at some point, lead to price increases.

And, over the past year, we’ve seen money made as cheap and as available as it has ever been, with more than $12 trillion in fiscal stimulus being given to businesses and households worldwide (with central banks adding trillions more in lending) in an effort to prevent a pandemic-driven depression.

A litany of pundits and politicians saw something else in all that money being plowed into the global economy: a dangerous experiment that could spark a runaway inflationary fire. Conservative MP and former finance critic Pierre Poilievre is at the head of that pack, with YouTube videos (occasionally involving props like a piece of wood or a quarter) decrying what he has taken to calling “the inflation tax.”

And, for some, the warning signs are already here. In May, inflation grew by 3.8 percent in the United States while, in Canada, it rose by 3.6 percent, its highest level in over a decade. With that jump, the cost of almost everything—food, vehicles, consumer goods—jumped too.

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