Inflation? The Workforce Is the Bigger Problem

This week’s unexpected rise in US inflation is an opportunity to revisit an old debate, which is often a useful exercise. This current bout of inflation has its roots in mistaken assumptions made a decade ago.

After the 2008-2009 recession, the recovery in the labor market was notoriously slow. This was commonly blamed on the demand side; monetary and fiscal policy could have done more, it was said, to stimulate recovery. A less popular view — but one that looks correct in retrospect — is that both the demand and supply sides were at fault.