Applying traditional methods to a nontraditional reality leads to errors in judgment, as has been the case for economists and their assessments of current economic dynamics. They have spoken of a wage-price spiral, a demand surge and government stimulus as culprits to explain economic realities, all part of The Story, an economic narrative that has lately proven inadequate in scope and detail. We have noted that over the past four decades, a disinflationary force driven by imports of inexpensive products and services from China with its cheap labor has altered America’s economy in ways that cause traditional approaches to misinterpret what is happening.
The economic readjustment after that extended disinflationary era has upended economic models, as have extreme weather, supply disruptions, a pandemic, financial fads, and shortages of workers. Cyclical pressures on the economy will respond to the Federal Reserve’s actions, but structural, or secular, changes in the economy will play out at their own pace.