That makes it all the more important to address two fundamental supply-side questions. Although the surge in demand may be larger than mid-pandemic forecasts indicated, it was the basis for the high growth projections in the pandemic recovery period. It seems clear that, for some significant period, global economic growth will be constrained by supply – a sharp contrast from the years after the 2008 global financial crisis. But participants in global supply chains increasingly predict that the shortages, backlogs, and imbalances between supply and demand will persist well into 2022, and perhaps longer. Many observers remain convinced that this is the case. But the likely duration of the imbalance remained unknown, and many argued that inflation – and, by extension, supply disruptions – would be “transitory.” And, yes, those forecasts – which appear increasingly prescient – implied that a surge in aggregate demand, fueled by a wall of liquidity and frothy asset prices, could outpace supply. Yes, influential macroeconomists did warn that the combination of highly accommodative monetary policy, elevated household-savings balances, pent-up demand, and massive fiscal spending significantly increased the risk of inflation. In fact, in the first quarter of this year, growth was overwhelmingly projected to accelerate, and experts were not exactly sounding the alarm that supply would fail to keep up.
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