Both Trump and Biden share responsibility for inflation | blogs


A chart of the US inflation rate is doing the rounds on social media, with President Biden’s term in office shaded pink. The effect is to draw attention to the dramatic rise in inflation since Biden was elected.

The purpose of this and similar images is to blame Biden for the inflation we are currently witnessing. Attached to the picture are all the words you might expect: Democrats put us in poverty and so on.

As I studied the chart, I noticed that inflation, despite rising from a then-low inflation rate, began its dramatic rise many months before Biden entered the White House.

Fiscal policy in the United States is largely determined by the Federal Reserve, which is designed to operate independently of the President. The president appoints the Fed chair (with the advice and approval of Congress), but Fed chair appointments are said to overlap with presidencies. So President Trump appointed our current Fed Chair Jerome Powell to a four-year term beginning in 2018, and Biden will appoint the next in 2022. Biden intends to reappoint Powell.

Early in his tenure, Powell worked to stimulate the economy to help it recover from the backlog of the 2008 recession.

Then COVID happened. As the Beatles song says, “Life is what happens when you’re busy making other plans.”

COVID caused a major shock to the economy and the Fed responded by pulling out all the stops. They increased the money supply (“printed money”) like a drunken sailor. In addition, Trump has issued multiple stimulus checks to every Tom, Dick and Harry (with Republican support). This was a way to stimulate demand for goods to help businesses hurt by COVID. It prevented jobs from disappearing and helped keep businesses afloat.

You may recall that Trump has occasionally been very critical of his own appointee for not stimulating the economy enough. Trump even threatened to fire Powell (which the President can’t do), and Powell responded by muttering something about Fed independence. However, Powell continued and even accelerated his stimulative policies. The Fed bought record amounts of US debt with newly created money and kept interest rates at record lows. All this helped to increase demand for goods and services.

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When Biden took office, a staggering 20% ​​of all US currency had been created in the previous 12 months. However, experts noted the negative impact of congested supply routes, shortages of raw materials and backups at US ports.

The Fed feared the economy would not grow fast enough to overcome the damage caused by COVID, and Powell continued his stimulus policy after Biden took office. Biden sent additional stimulus checks and funded infrastructure improvements (with Democrat backing) just like Trump before him, all to avoid a recession.

Russia’s unexpected war in Ukraine has further disrupted the world oil and grain supply chain and increased the need for economic stimulus.

All of that stimulation worked. The economy grew strongly by 5.7% in 2021 after contracting in 2020. There is no recession and many factories are operating at full speed. Wages are rising and there are plenty of jobs. The stock market has slipped from record highs but is still higher than 12 months ago.

Unfortunately, economic stimulus is a double-edged sword. Too much demand for things leads to shortages and higher prices.

It takes two to four years for excess money growth to manifest itself as inflation, and these chickens are coming home to settle. It is small consolation that other advanced countries are in the same boat.

I’m sure Republicans will continue to blame the incumbent President for everything that happens during his tenure. If the tables were turned, the Democrats would do the same. But that doesn’t mean we have to fall for it.

Both Trump and Biden share responsibility for inflation, as their own actions and their agents supported inflationary fiscal policies. It wasn’t done out of meanness or stupidity, but out of a desire to save the country from recession and a self-serving desire to have a vibrant economy when it comes time to vote. Our leaders overdid it and now we have to deal with a bout of inflation.

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