The Biden administration’s search for an inflation scapegoat has taken a number of turns as the data have continued to worsen. The most recent inflationary cause: Vladimir Putin, who is the culprit behind not just higher overall prices, but more specifically, the high cost of gas.
While war and supply shocks do raise prices, let’s not forget another culprit: government policy.
As Bruce Yandle writes, inflation, including gas prices, was roaring ahead long before Putin launched his war against Ukraine. The cause for that is the trillions of dollars government injected into the economy during and after the pandemic. It was a warning sign:
Early on, while the money printing presses were still running, noteworthy economists called for caution and predicted inflation would follow. Yes, much respected Florida State University* economist James D. Gwartney, Johns Hopkins University’s much-admired monetary scholar Steve Hanke, and former treasury secretary and presidential adviser Lawrence Summers each sent warnings, predicting that government spending based on printed money would deliver a serious bout of inflation. Washington leadership was in no mood to hear the advice. Meanwhile, the printing press kept running, and more spending was being proposed.
Now, we find ourselves with the predictable result. But our political leadership, irrespective of party, almost without exception refuses to accept the monetary explanation.
And in response to the government created mess we are very likely to get suggested solutions that will make matters even worse:
Instead of limiting debt-based spending and revising regulatory constraints, politicians will more likely call for more command-and-control remedies. Look out for proposed wage-price guidelines, restrictions on corporate profits, and limitations on mergers, all for the purpose of keeping a lid on made-in-Washington inflation.
Expecting the political class to admit its failures, however, will take a kind of self-awareness and humility that is rare among office holders and office seekers alike.