Inflation: How capitalism rations scarcity. Inflation ranks consistently near the top of voter concerns ahead of this year's election because prices are noticeably higher than just a few years ago. Many reflexively fault the President, but is Biden to blame?
This current round of inflation is a worldwide problem. It started with the Covid-19 pandemic and all the attendant supply-chain disruptions. When our global economy screeched to a halt, a hundred cargo ships sat anchored off our ports.
If we look at the G-7 economies, they (almost) all followed the same post-Covid economic playbook. After reopening, we hit a 9% inflation rate in the summer of 2022, our central bank, the Federal Reserve, raised interest rates, and inflation slowly eased. Five of the other G-7 members did exactly the same. In the summer of 2022, Canada's inflation rate was 8%, France was 6%, Germany was 9%, Italy was 11%, and the United Kingdom was 11%. Japan, with inflation at only 5%, didn't raise interest rates. (Financial Times - Global inflation and interest rate tracker.)
During "The Great Shut Down," many people stayed home and gasoline consumption dropped precipitously, along with oil prices, production, and refining. In April 2020, oil was less than $20 a barrel. (NYMEX) By the summer of 2022, when America reopened and everybody went back to work, the oil industry couldn't keep up with demand. You can reopen your store by calling your employees and unlocking the front door, but reactivating oil fields and refineries takes time to ramp up. As oil hit $120 a barrel and gas prices soared, the uninformed masses plastered "I did that" Biden stickers on every gas pump in America. With rising gas and diesel prices, every consumer product that is transported by land, sea, or air, goes up in price.
The economic turmoil of the pandemic and supply-chain issues gave businesses the perfect cover to charge us consumers much more than their rising production costs. U.S. corporate profits in the first quarter of 2024 were over 50% higher than just before Covid hit. To put that spectacular rise into perspective, it took 14 years for corporate profits to grow 50% in the period just before Covid. (St. Louis Fed) This is called: "Greedflation," "Price Gouging," and "Shrinkflation," by us economic scholars, and it's despicable.
When the Federal Reserve, which is NOT part of our government, raised interest rates, it made buying homes, cars, and every other financed item more expensive. Normal people would think that would be counterproductive, but in Fed-think, if you make it harder to buy things, the economy should cool, unemployment rise, and inflation ease. And here's where we can finally point the fickle finger of blame at President Biden. Before Republicans took over the House of Representatives and essentially shut it down, President Biden oversaw the passage of several bills that triggered explosive growth in construction, manufacturing, infrastructure projects and employment, effectively countering the Fed's actions and keeping interest rates elevated. Consider it a tradeoff.
