The inflation blame game: Five important facts to keep in mind
Published January 20, 2022
The subject of inflation has been on many tongues in the public policy world of late – especially as Republican politicians comb every nook and cranny of the news cycle for topics with which to launch broadsides at the Biden administration.
In November, North Carolina Congressman Ted Budd – a candidate for Richard Burr’s soon-to-be-available U.S. Senate seat – introduced a snarky bill that would “require all personnel in the Biden White House to complete a financial literacy course focused on inflation.”
More recently, Sen. Thom Tillis has echoed this familiar conservative refrain by issuing a statement blaming the surge in prices over the past year on the Biden administration’s “out-of-control spending.”
Not surprisingly, both attacks are, in the immortal words of the iconic baseball commentator Bob Uecker in the film “Major League,” “just a bit outside.”
Indeed, the simple truth is that inflation we see right now is neither the Biden administration’s fault, nor the grave threat to national well-being that critics would have us see it as.
Here are five important facts to remember about where things stand, how we got to where we are, and what should happen in the future:
No. 1 – The current inflation in the U.S. economy is not the result of the economic recovery packages enacted by the Biden administration and its congressional allies. As numerous economists have pointed out, inflation is currently a worldwide issue. World Bank Chief Economist and Director of the Prospects Group Ayhan Kose put it this way in an interview with Yahoo Finance last Wednesday: “Inflation is a global phenomenon. What we have seen in recent months, we see pretty much everywhere.”
In a column posted last Thursday, veteran economist Dean Baker of the Center for Economic and Policy Research noted that “we would have seen a substantial jump in inflation even if Biden has not moved aggressively to restart the economy.”
No. 2 – Inflation is attributable in large measure to increased demand and supply chain issues. You don’t have to be an economist to see and understand what’s been going on for the past several months in the global supply chain. When the pandemic hit, production orders for a host of key products plummeted – in many instances much more deeply than necessary. Again, here’s Baker:
"We continue to see the supply chain crisis, aggravated by the shortage of semi-conductors, which has impeded car production…. Together, these components [the hikes in new and used car prices] accounted for almost 1.5 percentage points of the inflation we have seen over the last year.”
Now add in factors like shipping bottlenecks and the impact of the omicron variant that has decimated countless workforces in recent weeks and the explanation for numerous shortages and price hikes is that much more obvious.
No. 3 – The U.S. economy has been growing by leaps and bounds. Yes, inflation remains a concern and a topic on which policymakers must keep their attention focused, but it’s also true that economic times have, overall, improved dramatically – in large part thanks to the administration’s recovery spending. As Baker observes:
"As a result of the [American Recovery Act], we are the only country to have a level of output above the pre-pandemic level. The unemployment rate is down to a level rarely seen in the last half-century. And, workers at the lower tiers in the labor market have unprecedented freedom to leave jobs they don’t like and to look for better opportunities.”
Would Budd and Tillis really have us return to the days of high unemployment and zero growth?
No. 4 – Inflation has actually provided a sizable boon to many average American borrowers. Obviously, the maintenance of high inflation is not a viable long-term economic strategy, but within limits, it can actually provide a big benefit to the huge number of average Americans who carry large amounts of debt. As UCLA economist Lee Ohanian observed last month in an interview with the news outlet, Marketplace, people with sizable fixed rate mortgages are now paying off their loans with dollars that are worth much less than when they bought their homes. “So this ends up being a wealth transfer from lenders to borrowers,” Ohanian said.
No. 5 – There is reason to expect things to calm down soon. The supply chain issue is a vexing one and the pandemic remains a huge and hard-to-tame wildcard but given the slight decrease in inflation that we saw in December, the drop in demand that usually follows the holidays, and the ongoing efforts to ramp up the production of everything from microchips and automobiles to food products and personal goods, there’s reason for optimism in 2022.
The bottom line: The ability of our national leaders to control the economy is clearly imperfect and incomplete, but it’s clear that they do have it in their power to bring things to a screeching halt by overreacting to the inflation issue. For everyone’s sake, let’s hope they keep calm and stick to the sober, moderate and highly successful course the President has thus far charted.