Inflation is a problem for the world economy for the first time since the 1970s and early 1980s. History indicates that inflation is caused by an exogenous shock.
Back in the 1970s, Republicans claimed that inflation was caused by deficits and government spending. Those claims were refuted by actual historical experience. During the 1970s, relative to the economy, federal budget deficits were low, but inflation was high by historical standards. During the 1980s, government spending and deficits were significantly higher but inflation was much lower.
The reality was that the inflation of the 1970s and early 1980s was caused by two foreign oil price shocks. The Arab oil embargo of 1973–74 and the Iranian Revolution of 1978–79 took a significant portion of oil off the market and caused soaring oil and gas prices.
The U.S. averaged 7.7% inflation from 1973–78, and then approximately 12% inflation between 1979–81. The 1979–81 period was double the October 2021 inflation rate of 6.2%.
Like the 1970s and early 1980s, the current bout of inflation is a world wide problem. The E.U. is experiencing its highest inflation since 2008 and inflation is 13% in China. Anybody who blames inflation in the U.S. is a passionate partisan. Is Biden responsible for inflation in Croatia? Really?
“I think the thing to remember is that Germany is having the highest inflation in 29 years. We just got the numbers from China, highest in 26 years. It’s a worldwide phenomenon because it’s a global supply chain problem.” Austin Goolsbee, former economic adviser to President Barack Obama.
As Goolsbee discussed, inflation is largely caused by supply chain problems. For example, factories and ports get closed in places like Vietnam and Malaysia due to Covid-19 outbreaks. Is that Biden’s fault?
Another factor causing higher inflation is that people are buying more goods rather than services due to concerns about the virus. Instead of traveling and going to restaurants, many people are buying more goods. This should ease if the virus eases.
The current round of higher inflation is also caused by high demand. The U.S. economy and other economies have recovered more quickly than expected. Oil production declined sharply in 2020 due to the recession caused by the pandemic and it simply hasn’t caught up with demand yet. Moreover, OPEC and Russia haven’t increased production since the world economy bounced back.
“By early 2022 supply and demand should about even out (assuming that enough people have been vaccinated and so the pandemic is under control) and this blip in inflation should disappear.” The NY Times. “The surest way to fix a pandemic-driven supply problem is to end the pandemic. ” Transportation Secretary, Pete Buttigieg.
In the U.S., this is largely a pandemic of the unvaccinated Republicans. The vaccines are very effective at preventing severe Covid-19, and approximately 40% of Republican adults remain unvaccinated, compared to about 10% of Democratic adults.
Here are the results from a Kaiser Foundation poll taken in October.
Fully vaccinated or have received one dose:
Black adults 73%
Hispanic adults 70%
White evangelical Christians 65%
Rural residents 58%
The refusal of many Republicans to get vaccinated is no coincidence or accident. It’s the product of a sabotage campaign from Fox News and the right wing media. The D.C. Republicans and the right wing media want to prolong the pandemic to make President Biden and the Democrats to look bad.
One of the solutions to inflation can be found in President Biden’s agenda. The recently passed Bipartisan Infrastructure (BIF)bill will ease supply chain problems, and the Build Back Better (BBB) bill will reduce health care, child care and educations costs for working and middle class families.
One of the many false Republican claims is that Build Back Better will increase inflation. Former Bill Clinton Treasury Secretary Larry Summers supports both BIF and BBB and doesn’t think they are inflationary: “I think it’s fine.” This is a significant development since Summers warned about inflation earlier this year and the Republicans amplified those claims. I doubt the GOP will now discuss Summers’ support for Biden’s agenda.
Former John McCain adviser economist Mark Zandi agreed with Summers: “I don’t think the Build Back Better agenda will be inflationary. I think it’s designed to lift long-term economic growth by improving productivity… That should ease inflation.”
Washington Post columnist Jennifer Rubin said it best: “Biden could sharpen his message with a high-altitude view of his agenda: He’s helping the middle class get good paying jobs (infrastructure, green energy) and reducing their expenses (fixing the supply chain, getting grocery prices under control, bringing down the cost of child care or prescription drugs). That’s it. Everything is either about increasing jobs and wages or reducing expenses.”
We must defeat the Republicans in 2022. If they regain control of one or more houses of Congress, the GOP will shutdown the government in an attempt to cut funding for vaccine production and distribution. They are that extreme.
Democrats must run hard against GOP radicalism and sabotage. The GOP platform for 2022 is to stiff America’s creditors, lay off 6 million Americans and to prolong the pandemic — all to sabotage the country.
“Don’t agonize; organize. No whining; just winning.” Nancy Pelosi.