Is There Inflation in Your Future? Or Deflation?

How much will my money be worth by the end of 2020? Should I stick it under a mattress or deposit it in an aggressive growth fund?Kevin Drum

Let our journalists help you make sense of the noise: Subscribe to the Mother Jones Daily newsletter and get a recap of news that matters.

When we finally defeat COVID-19 and everyone goes back to work (think positive!), are we due for a big bout of inflation? Or a big bout of deflation? You’d think top-flight economists could agree on at least this much, but no.

Here’s the basic case for inflation: As the economy opens up, people will go back to work pretty quickly. They haven’t been spending much during the lockdown, and the poor have been showered with money via the stimulus and the bonus unemployment checks. They’ve got a lot of money to spend, so demand is going to be high while supply is still trying to catch up. Thus inflation.

The case for deflation is basically the mirror image: Businesses that have been shut down can rehire workers pretty quickly and get their factories going in a short time. Ditto for service workers like hair cutters and loan consultants. Meanwhile, consumers are still in a state of shock and are going to be pretty careful with their spending for a while. After all, the UI bonus may have been great for the poor and working classes, but the engine of consumer spending is the middle and upper-middle classes, and they lost income during the pandemic. The result is that supply will get on its feet quickly while demand is still uncertain. Thus deflation.

So which is it? My personal view is neither. With a few exceptions, businesses don’t need to produce at full capacity instantly. Likewise, consumer spending isn’t likely to rise to pre-COVID levels immediately. Businesses will get their inventories back up to normal levels while they watch what’s happening to consumer spending. Consumers will start spending more as shortages go away and they gain confidence that another coronavirus wave isn’t coming. Business will see that and produce more. Consumers will see that and spend more. After a few quarters, everything will be back to normal with no significant effect on inflation at all.

I could, of course, be totally wrong. All of this depends not on twenty pages of Greek-letter math, but on a simple prediction of human behavior. If consumers, in particular, turn out to be far more cautious than I think, deflation may be in our future. Conversely, if it turns out they all want to party and they want to do it now, then we might get some inflation. I’m not willing to place a bet on either one, but if you think you know human nature better than me, Wall Street will be happy to take your bet on an inflation target for the next few months. Go for it.

POSTSCRIPT: Of course, this all assumes we don’t get a huge second wave of COVID-19 that kills us all, in which case inflation will be the least of our worries. Think positive!

IT'S NOT THAT WE'RE SCREWED WITHOUT TRUMP:

"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. It's our first time asking for an outpouring of support since screams of FAKE NEWS and so much of what Trump stood for made everything we do so visceral. Like most newsrooms, we face incredibly hard budget realities, and it's unnerving needing to raise big money when traffic is down.

So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

payment methods

IT'S NOT THAT WE'RE SCREWED WITHOUT TRUMP:

"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate