I caught a few minutes of the commentary after CNN's broadcast of the Kamala Harris interview and got annoyed all over again by Scott Jennings blathering about "Biden's inflation." I realize that I'm going to convince approximately no one, but it wasn't Biden's inflation. It was Trump's inflation.
Our recent surge in prices was not a normal inflationary episode caused by loose monetary policy. Those affect inflation indirectly and take some time to work their way into the economy. Rather, it was caused by a combination of two things: (a) a sudden, sharp fall in supply due to the pandemic, and (b) the $3.5 trillion CARES Act, which made up for lost income and kept demand at normal levels.¹ This has a direct impact on inflation, so it can work its way into the economy in only a few months. Here it is:
The first little burst of inflation in mid-2020 might be related to the CARES Act but is probably just an artifact, making up for the huge decline a few months before. But by the end of the year inflation crossed the 5% level for good and kept going up. Eventually, however, supply normalized and the CARES Act wore off. By the end of 2023 inflation was down to nearly normal levels.
Now, I don't really think this is "Trump's inflation" either. The supply collapse was due to the pandemic and the CARES Act was massively bipartisan. It was the right thing to do, even if a brief surge of inflation was the price we paid. Nobody in Congress was thinking about it this way, but we had a choice between a big recession or a bout of inflation, and we chose the inflation. It's certainly what I would have done.
The whole world went through roughly the same thing, although other countries stabilized demand in other ways. And it ended the same way throughout the world, when the pandemic eased and supply surged back.
Like I said, I know this is a hopeless cause. The inflation got bad on Biden's watch, therefore it's Biden's inflation. That's as sophisticated as popular thinking gets. But it ain't so.
¹In addition, the Fed lowered interest rates and began quantitative easing. This gave things an additional push.
Nobody in Congress was thinking about it this way, but we had a choice between a big recession or a bout of inflation, and we chose the inflation.
This is a key point. It was most improbable that we were going to strike the perfect balance. It was highly likely we were either going to err (at least slightly) on the side off either too much stimulus, or too little. Nothing's ever perfect.
"Too much" was the right choice. There was very little erosion of real wages, and the intense suffering associated with recession and widespread joblessness—as well as the long term dip in economic potential—was avoided.
I'll go a step farther. It wasn't improbable that we were going to strike the perfect balance. It was impossible. With the giant clusterfuck in supply chains and the dramatic shift in demand for various goods (eating out - down; groceries - up; driving - down; online shopping - up), a significant bout of inflation was absolutely baked in, no matter what options were taken.
I wish this would be chiseled into granite on a mountain somewhere, leaving room for similar summations, where we could just sigh and point to it instead of having to rehash and rehash it.
I think this is right -- the only way to match greatly reduced supply with greatly reduced demand would be to impoverish a huge chunk of the country. And that would have caused far more problems than a 10% rise in prices.
What Gary Goldberg said. Thanks to you and Jasper_in_Boston for framing the issue so accurately and succinctly.
Agreed. And given that the perfect balance was impossible, the Biden admin should get enormous credit for the US outperforming all of our peer nations as they confronted the same set of problems and choices.
People have short memories about how bad the Great Recession was and how slow the recovery was, owing to insufficient federal stimulus.
Yeah, another unnecessary 10 year recovery would have been fantastic.
There are enough Congress people who are very conscious of inflation, and there was enough commentary about inflation risks from the punditocracy, that I find it unlikely in the extreme that "Nobody in Congress was thinking about it this way, but we had a choice between a big recession or a bout of inflation, and we chose the inflation."
It seems much more plausible that they were thinking about and, as The MelancholyDonkey says, accepted that inflation WAS going to happen.
I see The Donald is promising to halve the cost of energy. This is the guy who sent the Kushner boy in 2020 to get a deal with OPEC + Russia to cut production, so prices would stay high enough that frackers wouldn't go broke. And then bragged about it.
How he thinks he can cut the cost of energy without massive government subsidies is a mystery. But the MAGA websites are littered with comments praising his "plan".
Big investments in wind and solar could do it.
Shifts in generator types: new gas plants aren't being built (much) and new capacity is wind, solar and batteries. (ok, batteries are just storage, but are treated as dispatchable energy).... (old gas plants still running, retiring plants are manily old fossil fuel, aka coal, ones)
can't find recent article on this, but there's this:
https://www.eia.gov/outlooks/steo/report/BTL/2023/02-genmix/article.php
Trump calls wind and solar investments "the war on energy"
Further, the share of the economy devoted to energy spending has decreased from double digit percentages in the 1980s to 6-7% recently. I guess it would be nice to slash that to even less, but energy is already pretty cheap.
Too cheap, in many ways, I think--the market price of electricity doesn't reflect the costs dumped onto the commons by fossil generation in the form of climate and conventional pollution. And cheap gas prices encourages all sorts of stupid gigantic SUV/truck culture that results in our drivers slaughtering each other on the roadways at levels far above most other countries.
Wind and solar, although they are fine things in and of themselves, still can't be considered reliable providers of base load power. For that you're going to need multiple terawatt-hours of storage. Believe me, I know; the nights are long and the days overcast here in midwinter in Chicago. And it only gets worse the further away from the lake you get.
Batteries aren't totally "just storage". They can also be used to increase transmission line capacity. For example, there's a big power line running from British Columbia to Southern California. It moves cheap hydro from Canada to California. Without batteries, you transmit a lot of this power on hot summer days when transmission line capacity is at a minimum. (Hot lines sag, and you have to limit the amount of sagging.) With batteries, you can transmit power over a longer period of time and when the lines aren't hot.
Batteries also provide benefits to the grid in terms of maintaining "frequency, voltage, and reactive power regulation".
"How he thinks"................ The ONLY thing Trump thinks is that people are dumb enough to buy his bullshit. And our useless press will NEVER ask him how he plans to do that.
This is Kamala's fault, she hasnt been doing enough interviews.
This. Kevin got what he wanted. She’s doing interviews. Kevin failed to realize though: there are no good interviewers left employed at any of America’s largest “news” media empires. The ones that exist today just want (1) gotcha moments and (2) reactions to whatever Fox News said or Trump tweeted.
Everything I’ve read about the interview tells me why Harris hesitated to give an interview: “So are you really black?” (paraphrase). … a few good moments but overall , a waste of time, trying to bait her into back and forth on Trump’s name-calling. Can we get a serious journalist with serious questions?
This narrative conveniently omits the massive additional stimulus in the first months of the Biden administration which people like Larry Summers warned at the time was too much.
This narrative conveniently omits that Larry Summers told us that a large recession would be necessary to fix the inflation that he predicted. His failure to understand inflation should give us pause before we assume he understands inflation.
The chart also shows us that inflation was already spiking before Larry warned us that inflation was about to spike.
I think that Larry has also tried to rewrite his 2021 predictions. Explaining that inflation was actually caused by supply problems and was transitory in nature.
+1
Thank you.
your narrative conveniently omits trump passing $3T in stimulus in 2020 which produced inflation > 7% by the time biden's stimulus had passed
"your narrative conveniently omits trump passing $3T in stimulus in 2020 which produced inflation > 7% by the time biden's stimulus had passed"
So maybe throwing gasoline on the fire wasn't the best idea.
"conveniently omits the massive additional stimulus"
For which I am very thankful. I remeber the pandemic (maybe you've forgotten already?) in which the economy basically collapsed worse and faster than any other crisis in nearly a hundred years. The pandemic is the single most significant event in human history since the second world war, and yet we came through it remarkably well; anybody kvetching about how this or that stimulus measure in their armchair opinion was Too Much! is like some crank complaining that the fire department that put out the blaze threatening a city block also stepped on the flower beds.
Unemployment is ~4%, incomes have outpaced inflation, the wealth gap has narrowed, and the US is more productive than ever before. What's the problem here? That you fondly remember how some random good cost $X in 2019 but oh noes now it costs $1.2X when under a counterfactual-without-a-global-pandemic-alternate-history it would only cost $1.1X?
All good points. Political and financial illiteracy in a democracy isn't harmless or cost-free. It leads people and institutions and countries to make terrible policy mistakes, or tragically misplace credit and/or blame, because they can't correctly see or diagnose the problem.
If Democrats thought only about winning elections, they would never have approved any stimulus. A deep covid recession would have guaranteed an end to Trump's political career. So now we may lose Democracy because Democrats were too worried about maintaining human welfare during a crisis.
"A deep covid recession would have guaranteed an end to Trump's political career."
Would it? I think it would have worked out largely the same, just with a whole lot more human suffering. 2020 would have been bad, and 2021-2024 would have sucked, leading to Election 2024 in which Trump could campaign on how good things were in 2019 before the Chinavirus/Democrat mishandling derailed America.
Kevin, this is what you demanded. “Kamala must do more interviews.” You failed to take into account that most interviewers in America today are terrible at their jobs. They do absolutely no research on any topic beforehand, and they are far too willing to accept whatever Fox News’s take is on any topic and grill the interviewee on it, regardless of whether it’s valid. But you got what you wanted, so don’t complain about it.
"...You failed to take into account that most interviewers in America today are terrible at their jobs. .."
So why did the Harris campaign pick this one?
the campaign tried contacting fox but they had their head so far up trump's ass they couldn't hear the message
A note about inflation. The primary cause (or blame, if you want) was the Covid pandemic, which interrupted supply chains and led to a worldwide recession. Inflation became a problem for the US and most peer countries. The fiscal stimulus in the US was the most robust of any country, and the US experienced the quickest drop in inflation and the most robust economic recovery of any country too. If there is any scenario that should be considered desirable, it's what happened in the US. Anyone "blaming" inflation on the US stimulus is doing so for political reasons, and hoping that the lesson learned is that the government response was the problem, instead of what was in fact a government response that avoided what would have been a far more devastating problem without, or with too small, a fiscal stimulus response.
A note about the CARES Act. It was signed by Trump, as were all measures during the election year of 2020. Worth noting also is that it was passed by a Democratic House led by Nancy Pelosi. It is not too hard to see why that's important. Imagine other scenarios and the likely outcomes:
R president, R congress: stimulus, though smaller
D president, D congress: stimulus, probably roughly the CARES Act
D president, R congress: stimulus so small you could drown it in your bathtub
In no alternative universe would R's give up the chance to wreck the economy under a D president during an election year as a path to regain power. This is a fundamental difference between the two parties.
One reason for the robust fiscal response from Democrats was the lesson learned from the previous crisis, the GFC of 2008-09. In that case, the fiscal response was too small. There was still too much "era of small government" thinking then, and Democrats were complicit (Obama's "Government at every level will have to tighten its belt" speech came two weeks before he even took office in 2009). The millions of homes lost, millions of jobs lost, countless lives ruined were still to come, along with even more budget tightening after Dems lost Congress. It wasn't quite the Great Depression, but it helped contribute to the neo-fascist, authoritarian turn in our politics and the rise of Trump.
Along comes the pandemic a decade later and one party at least was sure that government this time was not going to make the same mistake.
> Anyone "blaming" inflation on the US stimulus is doing so for political reasons,
Exactly.
" I realize that I'm going to convince approximately no one, but it wasn't Biden's inflation." - agreed
As for the causes of/who is to blame for inflation, similar to many topics in economics, there is not consensus, even within reasonable and seemingly non partisan economists.
https://www.cnbc.com/2024/07/03/is-inflation-bidens-or-trumps-fault-the-answer-isnt-so-simple.html
The interviewer used a Trump talking point. How very balanced.
I think that people think that "messaging" can magically solve way more problems than is realistic, but yet even with that in mind I have to say I don't think the Biden administration was great at communicating its point of view. It might not have helped Biden get tagged with this round of inflation -- it probably wouldn't. But I don't think his admin did a great job at selling anything they did, even compared to other administrations.
You are leaving out at least two contributions to inflation. The contributions included:
1) Supply constraints.
2) The Ukraine war.
3) Corporate profiteering.
4) And then, finally, the various helicopter drops.
Additionally, it is widely acknowledged that inflation was over-estimated due to inclusion of imputed rents. It's not clear how any of those would contribute to imputed rents.
This really deserves a much more careful economic analysis than your glib presentation.