Want to blame someone for inflation? Read this first

The day after President Joe Biden was inaugurated, I was buying gas at a Costco in Charleston. I have no idea what the per gallon price was in January 2021 because at the time prices were fluctuating within a “normal” range, and I try not to get worked up over things so far beyond my control they might as well be the weather.

Not so for the guy at the pump next to me, who was filling up one of those pickups festooned with lots of angry bumper stickers. He turned to me and said, “It’s up five cents a gallon since yesterday.” Then he cursed Joe Biden. I don’t think he was joking.

Imagine how he feels today. Of all the issues you’re going to hear about in the five months remaining until the midterm elections —crime, gun control, abortion rights, immigration, institutional racism, transgender legislation — inflation is the one most voters of all stripes are likely to relate to personally. It’s real. It affects everyone — regardless of race, gender, religion, or which cable news channel you watch. And it feels like someone is stealing your money.

Also, it is the ultimate political football, the easiest to blame on whoever’s in charge at the time. Those little “Biden Did This” stickers with arrows pointing to the price window sprouted like mushrooms on pumps across America as prices continued their recovery from around $1 a gallon in April of 2020 ($2.30 or so on his inauguration day).

I am not an economist. But I did make an A+ in freshman economics at a public university 50 years ago. And I spent most of the next 35 years writing and editing for national business publications such as The Wall Street Journal and Fortune. So I have a point of view. As they should, economists employ sophisticated mathematical models to analyze the intricacies of inflation. For the rest of us, though, this particular bout of inflation can be understood fairly simply.

For starters, it’s global and very much tied to the cataclysmic collapse of both demand and the supply chain during the pandemic. Remember that? When virtually everyone except the Swedes locked themselves at home, stopped going to work, traveling, driving, dining or shopping outside the home? COVID-19 shattered the world economy.

So countries like the U.S. faced a choice between entering a deep, sustained recession or pumping an unprecedented amount of stimulus into the economy to achieve a quick recovery. We chose the latter, and it worked. When Biden took office U.S, unemployment was still at 6.2%, after being as high as 16% 18 months earlier. Today, it’s half that at 3.6%. Most of our famous egghead economists (Looking at you Nobel Laureate Paul Krugman) assured us that sustaining the stimulus wouldn’t spark serious inflation, apparently overlooking some major issues such as the shift in demand from services to manufacturing goods (shopped for a new car lately?) Like Cassandra, former Clinton Treasury Secretary and unpopular ex-Harvard president Larry Summers, shouted to the rooftops that the stimulus was going too far and would be inflationary. He was right. Economics, like life, is full of tradeoffs.

Next, consider interest rates. U.S. 30-year mortgage rates hit an all-time low of 2.65% in January, 2021, the month Biden took office. Such low rates kept the housing boom roaring and home prices soaring, a significant contributor to inflation. Remember that President Trump appointed Jerome Powell to head the Fed mostly because he was a low interest rate hawk; if there’s anything Trump truly believes in it’s low interest—understandable for a man who has owed billions of dollars most of his adult life. Powell’s Fed has begun to raise rates, but many think he waited too long, and now it’s a delicate balancing act to quickly curb inflation without causing a housing bust and subsequent recession.

Trump’s protectionist tariffs on Chinese imports deserve some blame. You can argue the strategic merits of these tariffs credibly, but any way you slice it they are inflationary. And Biden can’t easily drop them. Big Labor likes them.

Price gouging is, sadly, human nature, and thus endemic to a segment of capitalism that is mostly unregulated. In the early 1950s, my father worked as an auditor for a federal agency called the OPS (Office of Price Services) whose job was to require large manufacturers and distributors to open their books and justify significant price hikes for food, steel, finished goods. Despite the legacy of this practice from the beginnings of World War II, any such effort today would be denounced as “radical left communism.” Combine that with an ever-shrinking number of big players in such industries as meat packing, and the price of chicken is whatever the fox who slaughters it says it is.

Finally, the big one that no one saw looming: Putin’s price hike. Yes, it’s a stretch for Biden to blame all inflation on the Russian invasion of Ukraine, but it did add the final element necessary to insure the perfect inflation storm. Before the war, the OECD forecast inflation for its 38 member countries at 4.4%. Today, it’s doubled to 8.8%. At 8.3%, the U.S. is actually doing better than many nations, including the U.K., and many less-developed countries are now fighting double-digit inflation.

Ukraine has had a multiplier effect on inflation. It’s a significant bread basket to the world, so the interruption of its harvest and shipment of grains puts serious pressure on global food prices. Meanwhile, the post-pandemic price of oil was already rising, helped along by President Trump’s pressuring Saudi Arabia to reduce oil supply to keep oil companies happy during the COVID collapse in demand. Now with the U.S. boycott of Russian oil, followed somewhat more haltingly by the European Union, oil prices are soaring. In April 2020, a barrel of oil cost $18.38. Today, the price is $118.

Thus ends today’s Economics 101 lesson. My point is not really who is to blame for this inflation, or who you should vote for to cure it. I’m merely pointing out that you probably shouldn’t let inflation be the issue that animates your voting choice. No one you’re likely to vote for, of any party, has a clue how to quickly solve a major world problem that is, frankly, beyond the grasp of policy makers anywhere. If you don’t believe me, just ask them, or listen to their rhetoric on the subject.

It’s Politics 101: Point fingers and tell voters what they want to hear. And on pocketbook issues voters rarely subtract points for empty, dishonest, ignorant blather. They’re just looking for promises to get their money back. Larry, or Jenny, or whatever local Congressional candidate is promising to get it back for you doesn’t stand a chance of delivering any time soon. Although, ironically, most of our economic experts now believe prices will begin to ease some time after the midterms, regardless of who we elect.