when we adopt inflationary policy, we really accept a trade-off, higher interest rates or inflation, rather than necessarily inflation per se. but both are pretty unpleasant! 1/

until, say, 2021 the consensus was resources were not fully employed we (in the US, i can’t speak as much to Canada) were at near-zero interest rates and undershooting inflation targets. 2/

the post-COVID supply chain shocks, plus lagged spending of COVID financial supports, ended that moment. we might have largely recovered it by now, but geopolitics and trade wars — ramped up in the Biden eta, turned chaotic and more dangerous now — took that off the table. 3/

so now the consensus is we are near “full employment of resources” broadly, even as demand for the single most important resource, labor, softens! (that is to say, we are near stagflation.) 4/

the import-sensitive share of the economy (which is bigger than the share of imports in the economy) is on a pricing knife’s edge. 5/

so it’s hard to make the case for expenditures unfunded by middle class taxes, unless those expenditures are carefully targeted at the resources for which there is slack demand. 6/

ie to some degree, one could imagine labor stimulative expenditure—say New Deal style public works construction or a job guarantee—without it being too inflationary, bc labor is decreasingly fully employed and some of the income you pay workers just replaces other supports you’d otherwise provide.7/

but just buying more public services broadly probably does imply diverting resources, engendering that trade-off between higher rates and inflation if not financed to some degree from an increment in middle class taxes. /fin