What the Hormuz Closure Tells Us About Inflation

We need more tools to manage supply shocks

Next week marks six months since the Iran war began. And since March, the closure of the Strait of Hormuz has disrupted oil, fertilizer, and aluminum supply chains, creating shortages that push prices upward throughout the global economy. In a new brief, Roosevelt Principal Economist Michael Madowitz explains why addressing this requires policymakers go beyond traditional inflation-management approaches and instead build up strategic capacity.

We’ve been here before, in this very decade—with the COVID-19 pandemic and Russian invasion of Ukraine—and each time, adjusting interest rates hasn’t been enough to deal with the resulting supply-driven inflation. Instead, policymakers should proactively stabilize the economy through industrial policy tools like buffer stocks and strategic reserves.

“Given the politically destabilizing risk inflation has posed to democratically elected governments this decade,” Madowitz writes, “progressive policymakers must develop more proactive approaches than the limited, reactive tool kit central bankers have at their disposal to prevent inflation shocks.”

Read the brief: We Don’t Have to Import Inflation: Policy Lessons from the Strait of Hormuz and Ukraine Supply Crises

What else we’re up to

• The tax code is a tool of democracy. As our democratic institutions face continued attack, advocates have proposed important and vital solutions like abolishing the filibuster and reforming the Supreme Court. These are necessary steps, but what they don’t address is one of the most important accelerants of authoritarianism: ever-growing economic inequality.
  • Join us on September 16 at 2:00 pm ET for a discussion with Roosevelt tax experts Brian Galle and Samarth Gupta, and political scientist Nate Kelly, moderated by Roosevelt’s Suzanne Kahn, about the role of tax code reform. Register here.
• Strengthening Social Security means strengthening the economy. “The strongest Social Security reforms may not look like Social Security policy at all,” USA Today’s Medora Lee writes. As economist Kathryn Edwards explains, “Who is working, how much they earn, how healthy they are, and how much they save matter more than the head count.”
  • Read more in Edwards’s brief,1983 v. 2032: The Economics of the Last and Next Social Security Reform,and watch the discussion among Edwards and other experts about how to update Social Security to serve today’s economy.

What we’re talking about