Yellen Wrong on so Many Things

She was wrong about inflation, eliminating the debt ceiling, Modern Monetary Theory, and Modern Supply-side Economics.

Secretary of the Treasury Janet Yellen has been on a media apology tour admitting that she was wrong last year when she said that inflation is “not a problem,” a “small risk” and “manageable.” Not only was she wrong about inflation, but she was also wrong about other policies. Her inaccuracies have contributed to policies that have made our severe inflation problem worse.

She says she misjudged the inflation threat mostly because of “unanticipated and large shocks to the economy” as well as supply bottlenecks.

That’s not exactly genuine. She knew early last year that the total level of U.S. economic output would be back to the pre-pandemic level by mid-year. That meant although there may be shortages in some markets, the overall supply was the same as before the pandemic. Inflation, then, was primarily caused by excess demand rather than supply issues.

Noting that the Biden administration was about to increase government spending by at least $3 trillion by year-end, after spending $3 trillion to stimulate the economy the prior year, inflationary excess demand was inevitable. And that amount of spending would lead to a total debt that would exceed the debt ceiling.