Home Markets Michael Hicks: Market adjustments aren’t inflation

Michael Hicks: Market adjustments aren’t inflation

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Inflation talk continues to animate the airwaves, or at least cable TV, and remains part of the political conversation. Economists should have something to say about this; after all, it has been a central area of research for much of the past century. Still, we should approach the issue with an abundance of epistemic humility.

Those who warned about high inflation in the wake of the Great Recession were wrong. A casual observer might view this with some relief, since we nearly all erred in overestimating inflation. Still, this should be of no comfort. The mathematical models we use to understand and predict inflation perform poorly, and there is plenty of opportunity for symmetry of error, so there is a real possibility of underestimating the risks of inflation this time.

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