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Inflation, Money Supply and Spiraling Expectations

Wall Street Journal  | Wed, Nov 3, 2021

by Paul Sheard, Harvard Kennedy School


John Greenwood and Steve Hanke’s contention that excessive monetary growth is the cause of recent high inflation doesn’t hold water (“The Monetary Bathtub Is Overflowing,” op-ed, Oct. 22). Behind the 35.7% increase in M2 money supply that they cite—and attribute mainly to the Federal Reserve—lies $5.5 trillion of net spending power injected by the federal government. This was to offset the biggest short-term hit to aggregate demand in U.S. history.

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