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We Now Live in an “Age of Inflation” Says Distinguished Economist

Isaac Nuriani    |
Dec 9, 2022
  • Harvard economist says new era of inflation has begun
  • Kenneth Rogoff says governments and central banks misjudged inflation risks of generous policy
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In October, the consumer price index increased at its slowest year-over-year pace in nine months.[1] “Slow” is very much relative in this case, however. At 7.7%, October’s CPI remains not far off the 40-year highs reached earlier this year.[2]

Still, despite the persistence of high inflation, few expect acutely elevated prices to last. But even as signs of price relief emerge, there remains a belief that underlying drivers of chronically higher inflation will survive – and that Americans should plan for inflation to be a part of the economic landscape going forward.

Kenneth Rogoff thinks that’s the case. Rogoff is an economics professor at Harvard University and senior fellow at the Council on Foreign Relations. His long and distinguished career includes time spent as the International Monetary Fund’s chief economist and service at the Federal Reserve Board of Governors. So it’s fair to suggest Professor Rogoff knows whereof he speaks when it comes to matters concerning the economy.

In a recent article for the outstanding journal Foreign Affairs, Rogoff suggests we’ve entered what he calls “the age of inflation.”[3] In this new era, a variety of foundational inflation drivers will thrive long after drastically high prices have subsided. Prominent among them, according to Rogoff, is an acceptance – an embrace, even – of fiscal and monetary assistance in a way we really haven’t seen before.

If Rogoff is right, the implications for retirement savers could be substantial. Economic volatility stemming not only from high inflation but also from central bank efforts to contain it has made life tough for savers this year. Among the variety of consequences has been a loss in Americans’ net worth of as much as $10 trillion.[4]

If inflation above the Federal Reserve’s 2% target continues for an extended period – as Rogoff contends will happen – it’s worth considering the possibility that the difficulties retirement savers have encountered this year will continue, as well. And if that happens, those retirement savers would be well-advised to give serious thought to what they can do to help reduce the impact of those challenges on their hard-earned nest eggs.

I’ll bring that topic up again before we finish up. First, though, let’s spend a few minutes taking a closer look at what Ken Rogoff had to say in Foreign Affairs as he laid out his case that we now are living in an “age of inflation.”

Rogoff: Governments and Central Banks “Discounted Inflationary Risks” of Expansionary Fiscal and Monetary Policies

For the record, in his 5,000-word article Rogoff cites more than just fiscal and monetary policy as inflation drivers in the new era of higher prices he says is in play. For example, he also mentions the apparent movement away from globalization as well as the higher costs associated with the ongoing worldwide transition to green energy – “greenflation,” as it is called.[5] I addressed those anticipated sources of structural inflation recently in another blog article.

I want to devote my time to the points he makes about the capacity expansionary fiscal and monetary policies can have to chronically intensify inflation above target. Rogoff is the one who succinctly told all of us previously that “since the invention of money, pressure to finance government debt and deficits, directly or indirectly, has been the single most important driver of inflation.”[6]

On that note, Rogoff wastes no time in his Foreign Affairs piece placing a big part of the blame for current high inflation on generous governments and central banks scrambling to keep their economies – and citizens – buoyant as the pandemic raged:

Fearing a pandemic-driven recession, governments and central banks were instead preoccupied with jump-starting their economies; they discounted the inflationary risks posed by combining large-scale spending programs with sustained ultralow interest rates.[7]

The economist believes – as most seem to – that near-term drivers of what has become drastically high inflation will lose steam at some point in the near term. America’s entire M2 money supply increased by a stunning 41% between early 2020 and mid-2022 as fiscal and monetary policy worked together to keep the economy functional during the worst of the pandemic.[8] As the money supply now (slowly) decreases, the biggest inflation numbers also should recede.[9]

So what makes this the age of inflation – as Rogoff calls it – if high inflation is expected to fall? It’s that while inflation is expected to descend from its loftiest heights, price pressures may very well continue – and do so on the basis of “energy sources” that could prove lasting.

One such energy source is ongoing expansionary fiscal and monetary policy. Rogoff points out that when governments and central banks turn on the money spigot during times of crisis, they’re not always so good at turning it off when the crisis has passed. It turns out that expanding the money seas with the push of a few buttons can be rather intoxicating to some:

Inevitably, stimulus spending is political, and those who promote large rescue packages are often also motivated by the opportunity to expand social programs whose approval in Congress might in ordinary times be impossible [emphasis added]. This is one reason why there tends to be far less talk about reducing stimulus once a crisis is over.[10]

Case in point:

Just three months later [following passage of President Trump’s COVID-19 relief package], although the economy was continuing to recover, Democrats under Biden passed a new $1.9 trillion stimulus package, with a number of prominent economists, including New York Times columnist and Nobel laureate Paul Krugman, cheering them on. Krugman and others argued that the package would enhance the recovery and provide insurance against another wave of the pandemic and that it carried minimal risks of igniting inflation.[11]

In other words, Rogoff is saying that crises can be ideal opportunities for governments to make what amount to permanent expansions to the social safety net. Those efforts, in turn, help to perpetuate fiscal and monetary policies that are inherently inflationary.

Roots of Build Back Better and Inflation Reduction Acts Found in Pandemic Spending 

Do you remember the Build Back Better Act? A greatly watered-down version of the legislation eventually became law as the Inflation Reduction Act.[12] But when Build Back Better first came to life in its original form, it was a $3.5 trillion monstrosity that New York Times reporter Jonathan Weisman said was “the most significant expansion of the nation’s safety net since the war on poverty in the 1960s.” Weisman also described it as “legislation that would touch virtually every American’s life, from conception to aged infirmity.”[13]

Now, read what Mr. Weisman went on to say about how this massively expensive bill saw the light of the day in the first place:

The pandemic loosened the reins on federal spending, prompting members of both parties to support showering the economy with aid. It also uncorked decades-old policy desires — like expanding Medicare coverage or paid family and medical leave — that Democrats contend have proved to be necessities as the country has lived through the coronavirus crisis.[14]

Again, the bill in its original form didn’t become law. And when it was eventually passed in the form of the Inflation Reduction Act, it was a $740 billion piece of legislation – not $3.5 trillion.[15]

But the point – Professor Rogoff’s point – is that crises tend to justify spending sprees and ultra-easy monetary policies. These periods of fiscal and monetary excess can be perpetuated by opportunistic politicians in the name of expanding the social safety net. From there, a fundamental driver of inflation effectively becomes embedded in the nation’s economic fabric.

Not long ago, I wrote about some research showing not only that global shocks have been on the rise over the last two decades but that they’re likely to continue. Along the same lines, Ken Rogoff also suggests we’re in store for a continuing stream of such developments, noting, “Today, large-scale global shocks such as war, pandemic, and drought seem to be coming one after another or even at the same time.”[16]

The possibility we’ll see such ongoing turbulence, combined with the apparently greater inclination on the part of governments and central banks to help alleviate the resulting impacts to citizens, could help perpetuate the era of higher inflation about which Rogoff speaks. And as Rogoff further explains, as those “reasonable” justifications for outsized fiscal and monetary assistance continue, so, too, will the efforts to morph those supposedly shorter-term “helps” into something more permanent.


[1] Bureau of Labor Statistics, “Consumer Price Index Archived News Releases” (accessed 12/8/22).
[2] Ibid.
[3] Kenneth Rogoff, Foreign Affairs, “The Age of Inflation” (November/December 2022, accessed 12/8/22).
[4] Robert Frank, CNBC.com, “Stock market losses wipe out $9 trillion from Americans’ wealth” (September 27, 2022, accessed 12/8/22).
[5] Rogoff, “The Age of Inflation.”
[6] Kenneth Rogoff, IMF.org, “Globalization and Global Disinflation” (August 29, 2003, accessed 12/8/22).
[7] Rogoff, “The Age of Inflation.”
[8] John Greenwood and Steve H. Hanke, Wall Street Journal, “The Fed Ignored the Money Supply, and a Recession Is Coming” (July 7, 2022, accessed 12/8/22).
[9] Federal Reserve Bank of St. Louis, “M2” (accessed 12/8/22).
[10] Rogoff, “The Age of Inflation.”
[11] Ibid.
[12] Li Zhou, Vox.com, “How Democrats plan to overhaul taxes, climate spending, and health care before the midterms” (July 28, 2022, accessed 12/8/22).
[13] Jonathan Weisman, New York Times, “From Cradle to Grave, Democrats Move to Expand Social Safety Net” (November 1, 2021, accessed 12/8/22).
[14] Ibid.
[15] Shawna Chen, Axios.com, “Biden signs Democrats’ $740 billion tax, climate and health care bill into law” (August 16, 2022, accessed 12/8/22).
[16] Rogoff, “The Age of Inflation.”
[17] U.S. Inflation Calculator, “Historical Inflation Rates: 1914-2022” (accessed 12/8/22).
[18] Buyupside.com, “Inflation Calculator” (accessed 12/8/22).
[19] Niloofer Shaikh, Seeking Alpha, “98% of CEOs predict recession in 2023 – Conference Board” (December 7, 2022, accessed 12/8/22).






















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