The Continuing Cost Problem (short version)

Inflation has been a receding problem since the early 1980s. Our problems now are inequality, stagnant income, slow growth, and more --- but not inflation. So why am I writing about inflation?

First of all, it's not inflation I'm writing about, but cost-push inflation. More to the point, my focus is not on cost-push inflation but on the cost-push problem: the problem of continuing cost growth, a problem that can give rise to either inflation or slow growth. It gave us worsening inflation in the 1950s and '60s and '70s; since the 1980s it has given us slowing growth. That's what I'm writing about.

The growing cost of finance is the source of our continuing cost problem.

The consequences of financial growth are "non-linear"; they vary. The growth of finance in the 1950s and early '60s helped our economy more than it hurt. In the years since, the growth of finance hurt our economy more than it helped.

Unfortunately, the thinking of policymakers is mostly linear. They learned in the 1950s and early '60s that using credit was good for growth. They adopted the principle that using credit is good for growth, and have applied that principle ever since. When non-linearity turned against them in the 1960s, their policies started to become less effective. But instead of questioning their guiding principle -- credit use is always good for growth -- the solution they adopted was to keep strengthening the policies that promote credit use.

That solution is the source of our troubles.