It’s been said that it’s the task of academic economists to play the role of the Lear-like fool, telling truth to power and challenging convention. So when two of the most prominent jesters at the court of King Jay begin to warn about inflation, it’s worth paying attention. The two fools in question, Larry Summers and Olivier Blanchard, have warned in recent weeks that the proposed US fiscal stimulus is so large that it could unleash a severe bout of price pressures.Their workings are based around the concept of the output gap — which measures the amount of slack in the economy. The .9tn package, Summers says, is so large that it risks overshooting the gap and producing the sort of inflation we haven’t seen in a generation. Others — including Kenneth Rogoff and Paul
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It’s been said that it’s the task of academic economists to play the role of...