President Joe Biden once bizarrely remarked on the 2020 campaign trail, “Milton Friedman isn’t running the show anymore.” It shows.
Earlier this month, the Labor Department reported that the CPI rose at its fastest rate since 1990: 0.9 percent for the month of October and 6.2 percent year over year—faster than Wall Street consensus estimates of 0.6 percent and 5.9 percent, respectively.
Perhaps most telling, the acceleration in prices still clocks in at 0.6 percent monthly when the volatile food and energy categories are excluded, suggesting inflation is here to stay. Astute observers might notice that the 0.9 percent monthly change in CPI represents faster inflation than earlier this year, and that if current trends continued for one year, next October’s annual price increase would be 10.8 percent. These figures, quite frankly, obliterate any notion that our inflation is “transitory” or trivial. In response, the president declared inflation his “top priority.” Judging by the administration’s economic agenda, this only spells more trouble.
Most of our economic Brahmins in Washington have misdiagnosed the causes of the current inflation crisis. Watching the chattering classes or browsing through center-left websites, one deduces that there is great consensus among the intelligentsia on who is to blame: you. You buy too much, expect it too quickly, are too dependent on complicated supply chains, and have not adequately respected COVID safety measures, thus ensuring that the virus continues to disrupt the economy. Just lower your expectations, as the Washington Post opines
Missed in this analysis is the fact that the worst of COVID has been over for quite some time in the United States, and almost all states have eased or eliminated their COVID-related lockdowns and the shuttering of factories and stores. To the extent that the current inflation may be attributable to a virus with a death rate of 0.5 – 1 percent (reported—many people had the virus and never reported it), it is attributable to the unintended consequences of government overreaction—businesses that no longer exist, knowledge no longer employed, human capital lost, higher compliance and transactional costs, etc. Meanwhile, blaming the American consumer is what Frederick Douglass would call “an old dodge.”
In the 1970s, Presidents Nixon, Ford, and Carter all contended that inflation was to varying degrees due to overconsumption, or excessive demand, and plans like Ford’s “Whip Inflation Now” (WIN, ironically) encouraged Americans to reduce their consumption of goods and services to beat inflation, ignoring the fact that obtaining goods or services at high prices is often better than not obtaining them at all in the name of low prices.
Ronald Reagan lambasted this line of thinking in his 1980 debate with Jimmy Carter when he asked, “Why is it inflationary to let the people keep more of their money and spend it the way they’d like and it isn’t inflationary to let [President Carter] take that money and spend it the way he wants?”
Our current policymakers could use a similar chastening.
Although unspeakable for many mainstream economic thinkers and policymakers, the proximal cause of our accelerating inflation is obvious: massive money printing to fund surging government spending. Since the pandemic’s onset, the American people saw multiple rounds of direct stimulus payments, increased unemployment benefits, unprecedented bailouts of businesses (small and large) across the country as well as states and municipalities, and we saw another $1.2 trillion in infrastructure spending when President Biden signed the Bipartisan Infrastructure Framework, or “BIF.”
The deluge has been so tremendous that many funds from the last stimulus bill are still unspent. The last two years have seen over $5 trillion in new government spending. Whatever the effect of COVID lockdowns and misallocation of human and physical capital from sweeping orders is doing to exacerbate inflation, the current level of government spending is the elephant in the room. Yet the administration proposes a new elephant breeding program, in the form of expanded government spending, as the solution. The president urges Congress to pass the “Build Back Better” social spending package of $1.75 trillion (on paper—the real cost is likely to far exceed that figure), which will help “fight inflation.”
Such magical thinking will not stand up to the next few months’ inflation data, and the American people must demand an end to this madness. Government created this inflationary crisis. It could end it tomorrow by reversing the Federal Reserve’s easy money policies, removing barriers to free trade, and shutting off the spigot of its own reckless spending—which spurs the money pumping.
I’m not holding my breath for that outcome, but the American public is waking up to the threat of inflation and its causes. Libertarians and economic conservatives should call out the cause of this crisis loudly and often. At this rate, Milton Friedman might be unbeatable in 2024.