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Archive for June 15th, 2022

Some of my Republican friends get irked when I point out that President Biden should not be blamed for surging prices.

As I explained in March, we should instead blame the Federal Reserve for inflation.

Moreover, the Fed’s big mistake started in early 2020 when the central bank dramatically expanded its balance sheet (see chart). And that error took place well before Joe Biden entered the White House.

Unfortunately, instead of pointing a finger of blame at the Fed, some of our friends on the left have decided to assert that inflation is caused by greedy companies.

A recent New York Times column by German Lopez addressed this claim.

The good news is that Mr. Lopez’s column pours cold water on the “greedflation” theory.

The bad news is that the column completely overlooks the role of the Federal Reserve.

As prices have increased faster than at any other point in four decades, lawmakers have scrambled for explanations. In recent months, some Democrats have landed on a new culprit: price gouging. …”greedflation.” For Democrats, it is a convenient explanation as inflation turns voters against President Biden. …And it lets them recast inflation as the fault of monopolistic corporations — which progressives have long railed against. …there are other, more widely accepted explanations… Covid disrupted supply chains globally. Russia’s invasion of Ukraine caused another wave of disruptions, particularly in food and energy. The stimulus bills left people with a lot of extra cash, and many Americans spent it. That prompted too much demand for too little supply, so prices increased.

Just in case you suspect I’m not being fair, the words “federal reserve” or “central bank” do not appear in the article. Anywhere.

Needless to say, writing a column about rising price levels without mentioning the Fed is like writing the history of World War II and not mentioning Germany.

Why did the reporter make this mistake? If I had to guess, he probably noticed there was a debate inside the Democratic Party between the “crazy left” and the “rational left.” So he wrote about that conflict without noting (or perhaps even realizing) that there are other points of view.

Such as the late, great Milton Friedman.

P.S. For those who want more background, the crazy left are economic illiterates such as Robert Reich, Bernie Sanders, and Elizabeth Warren (and some guy named Lindsay Owens, who was cited in the article).

The rational left are people like Larry Summers, Bill Clinton, and Arthur Okun (and Jason Furman, who also was cited in the article).

I disagree with folks who are part of rational left, but at least they are tethered to reality.

P.P.S. Biden did not cause inflation, but (unlike a former president) he does not seem to understand how to solve the problem.

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