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Date April 14, 2025
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Political economist Mark Blyth weighs in on inflation, tariffs and ‘the worst of all possible worlds’

By Georgia Sparling

As global financial systems react to economic shifts, a new book from the director of the Rhodes Center for International Economics and Finance at Brown University explores the causes and impacts of inflation.

PROVIDENCE, R.I. [Brown University] — As the global response to tariffs and concerns about inflation reach a fever pitch, Brown University political economist Mark Blyth is rethinking conventional economic wisdom on why prices go up and how policymakers can wrestle them back down.

In his forthcoming book, “Inflation: A Guide for Users and Losers,” Blyth and co-author Nicolò Fraccaroli analyze common assumptions about inflation and what drives it in the modern global economy, from climate shocks and demographic change to geopolitical tensions.

“The world is in a profound moment of change,” said Blyth, a professor of international economics and international and public affairs who directs the William R. Rhodes Center for International Economics and Finance at Brown’s Watson Institute. 

“Inflation: A Guide for Users and Losers” will be published on Tuesday, May 6. Blyth is the author of several prior books including “Angrynomics” and “Austerity: The History of a Dangerous Idea.” In this Q&A, he offers his perspective on inflation and the impact of the U.S. presidential administration’s tariffs, and explains why he’s optimistic about the future.

Q: Inflation has been a constant topic in the news, especially in relation to the price of eggs and groceries. How do you define it?

It’s pretty straightforward: It’s not when houses get expensive or when eggs get expensive — it’s all prices rising at once and continuing to rise.

Q: What causes inflation?

If you’ve taken an economics class, you’ll get this idea that inflation is caused by the government printing too much money, that money chases too few goods, and prices go up, which is not wrong. But there are also supply-side shocks, like the world running out of personal protective equipment during COVID, and workers asking for wages that exceed productivity gains. The inflation that we had in 2021 and 2022 was mainly the pandemic meeting the energy crisis from the war in Ukraine — a simultaneous supply and demand shock. Many of the goods you consume travel across three or four borders, and if any of those systems begin to break down, then the costs go up.

Q: What inspired you to write this book?

Every time there’s inflation, we go back and raise interest rates. But if this problem is a supply shock, which is what it seemed to be during the COVID shutdown compounded by the energy price crisis and the war in Ukraine, why is raising the price of money, which primarily affects things like the housing market and business investment, the right response to what seems to be a totally different thing? We get many of our ideas about inflation from the 1970s, but we’re in a really different world now, and the “how to fight inflation” playbook that we draw from the 1970s is perhaps not appropriate. Essentially, the new book explores: “Who wins and who loses from inflation? And why do we keep thinking we’re in the ’70s when we’re obviously not?”

Q: How does inflation impact the average consumer?

First, there is no such thing as an average consumer, and that is important. Second, we commonly hear that everyone suffers from inflation equally, but that’s not true. The further down you are on the income scale, the more of a percentage of your paycheck you spend on consumption. That’s why inflation really hits those at the bottom of the income distribution the most. 

In contrast, who benefits from inflation? The folks at the other end of the income scale. For example, in 2022, American oil and gas companies made $220 billion in profits over their pre-COVID baseline. Fifty-one percent of that was given away to shareholders as the shares went up in value, and in dividends, most of which went to the top 1% of earners — about 3.3 million shareholders. That more than offset any costs that they suffered through inflation. They actually profited from inflation.

Q: One fear with inflation is that once prices go up, they will never come down. How do you respond to that? 

There are certain sectors where prices are not returning to where they were before. Let’s take climate change, for example. Whether it’s in the form of insurance costs because of big wildfires or whether it’s because of the impact on food supplies, there’s going to be more of those types of supply shocks that are going to feed into inflation. There’s also a “levels” effect where once the price level jumps, people get used to it, and it stays there. 

Q: What are tariffs and why is the U.S. imposing new tariffs on its trade partners? 

Tariffs are basically a tax on foreigners that often rebounds as higher costs in the country that applies them. More specifically, they’re an attempt to make something coming into the United States more expensive to benefit domestic producers. Donald Trump is imposing these tariffs because he wants to rebalance the global economy so that America exports more and other countries that are exporters import more. Will other countries retaliate and turn that into a trade war? You bet, which is why this strategy will not work.

But other countries shouldn’t be shocked because we’ve been at this for the past eight years. Trump initiated new tariffs during his first term, and Biden kept them and added to them as a part of his signature Inflation Reduction Act, which was an attempt to reindustrialize the economy around green sectors. Trump wants to do the same, reindustrialization behind tariffs, only much more aggressively and with a focus on carbon-based industries. 

One of the things that people really care about is housing, and this isn’t a uniquely American complaint. ... Yet nobody seems to want to include that in the conversation about how we make our countries better.

Mark Blyth Professor of International Economics and International and Public Affairs
 
Mark Blyth

Q: Do tariffs automatically result in inflation?

The traditional answer is that tariffs are going to push up prices and cause inflation, but the 2016 tariffs were applied, inflation was predicted, and it did not happen. But the tariffs passed in April are an order of magnitude bigger and so indiscriminately applied that yes, prices will go up across the board. The economy will slow down, too, so we risk getting the worst of all possible worlds: stagflation, unemployment and inflation together.

Q: Is there a way for consumers to ‘tariff-proof’ themselves against rising prices?

Maybe. If you know that the tariff on German cars is going up and you really want that BMW, then buying it now might be a good idea. However, if everybody decides that everything’s going to get more expensive and they go out and buy it, then you end up with a shortage and the price goes up. It’s called inflation.

Q: Will new tariffs lead to more products being made in the U.S. and thus encourage innovation?

Maybe, but oftentimes tariffs don’t lead to growth, and rather than innovation you get stagnation. It’s easier to sit behind a protective tariff and make bad stuff than it is to use that protection to make better stuff. In terms of tariffs leading to industrialization, there are lots of complex arrangements that have to be put in place to make that happen. You have to have the available labor. You need to have the skills available to do the expansion in the sectors you want. Simply putting up a tariff is only the first step in the journey. The next steps are contingent upon having a functioning state and good-quality training institutions. These are, unfortunately, the things that the administration is busy dismantling. 

Q: Can higher tariffs result in lower income tax?

If you want them to replace the income tax, it’s not going to work. You will never raise enough revenue. If you want them to advantage American industry over foreign competition, it might work. But it might also just lead American firms to say, “Hey, we don’t need to bother anymore. Let’s sit behind this tariff and make crappy cars no one else wants.”

https://www.youtube.com/embed/lheFvDLIFH4

Mark Blyth explains tariffs

 

Brown University political economist Mark Blyth explains how tariffs impact consumers and the political economy.

Q: Inflation, tariffs and egg prices have been top headlines in recent months. Is anything missing from the conversation? 

One of the things that people really care about is housing, and this isn’t a uniquely American complaint. We stopped building houses for normal people across the developed world sometime around the mid-1980s, and as populations grew, guess what? There’s a shortage. The people who were on the right side of the deal in the 1980s and 1990s were able to buy up these cheap properties and just watch them rise in value. The last thing they want is for their retirement assets to be devalued, so the only people who make out on this deal are the kids of those families who are property rich and who can pass it on. Everyone else is paying exorbitant rent, and yet nobody seems to want to include that in the conversation about how we make our countries better.

Q: How concerned should Americans be about the national debt?

Here’s something to think about: The public sector’s debt is the private sector’s assets, because 70% of bonds are held by Americans or American firms. Why would they do this? Because when you hold cash, you get nothing. When I buy a Treasury bond, I get all my money back after a defined period, and they pay me interest. So far, it’s never failed. In fact, every country in the world buys dollars because it’s regarded as the global savings asset for the planet as a whole. Treasury bills are interest-paying cash you can always sell to someone else. There’s never been a failed Treasury auction. Why? Because my debt is your savings asset. 

So why would the folks holding our bonds want to destroy their savings by dumping our bonds? We used to think that big countries with reserve asset currencies don’t go bust because of this “global savings asset” role. But as these tariffs are showing us in real time, the faith that backs up the U.S. bond market can begin to shift, and if it does, it could be much harder to find people willing to hold U.S. debt as the global savings asset. 

Q: Having said all this, are you an optimist or a pessimist?

I am quite optimistic about the state of the world because the biggest problem we face is decarbonizing our economies, and we now know that we can produce solar power at an unbelievable scale. Every year China installs more solar than what the rest of the world already has in place and there are emerging technologies like geothermal boring and mini nuclear reactors. If we can do that, the hard-to-decarbonize sectors become easier and the price curve drops as well. I worry that our short-term worries and even more short-sighted policies, like the U.S. doubling down on carbon, clouds our ability to see that we should be optimistic about the future.  

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