Is inflation really Biden's fault?
May 9, 2022 6:27 PM   Subscribe

Help me understand the current runaway inflation and its causes. I have two reasons: 1) I have swing voter friends who plan to vote R next US election because they feel Biden has mishandled the economy, and 2) I legit don't understand whether inflation is impacted much, or at all, by which administration or Congress is in power.

Some of the things I hear:
* It's supply chain shock: with COVID closures in China and unpredictable demand patterns, businesses cannot reliably deliver the goods we want when we want, so people bid up the prices due to scarcity.
* It's wage inflation: everyone demanding $15/hour means people have more to spend and are competing to buy certain things.
* It's Ukraine: oil prices are all over the place due to this.
* It's the stimulus: We gave everyone a bunch of money during COVID, ergo, inflation.

Bonus points for links to podcasts or other media where I could build an understanding. It's daunting because apparently economists don't agree on the causes or longevity of this trend. Examples help, like "why are eggs so expensive?" When I listen to interviews about the stock market, or stuff about why productivity needs to go up to break the spiral, it all seems very handwavey and disconnected from what normal people experience: prices went up 7% last year and I got a 1% raise; so lemme vote for the Republicans ...
posted by freecellwizard to Work & Money (36 answers total) 17 users marked this as a favorite
 
Your list didn't include profiteering and price-gouging as part of the story, unless I was reading too fast, so you might want to look into that also.
Relevant Rep Katie Porter tweet
posted by slidell at 6:35 PM on May 9, 2022 [30 favorites]


Giant companies are taking advantage of the fact that, after 40 years of mergers and acquisitions, many markets are now effectively monopolies or duopolies, and they can now charge whatever prices they want.
posted by rockindata at 6:36 PM on May 9, 2022 [21 favorites]


I googled “record profits 2022” and found tons of articles (lots about oil but other industries as well. Definitely worth looking in to.
posted by brilliantine at 6:44 PM on May 9, 2022 [5 favorites]


The governor of Texas ordered enhanced inspections on cross border traffic, creating huge backlogs, choking commerce and putting “pressure on Washington”.
posted by brachiopod at 6:52 PM on May 9, 2022 [9 favorites]


A simple way to answer the question "Is [phenomena] the fault of [local politician]?" is to take a look at what is happening in other countries outside the purview of [local politician].

In case anyone hadn't noticed, inflation is currently an issue in a lot of countries.
posted by HiroProtagonist at 6:58 PM on May 9, 2022 [80 favorites]


Giant companies are taking advantage of the fact that, after 40 years of mergers and acquisitions, many markets are now effectively monopolies or duopolies, and they can now charge whatever prices they want.

Yes. Also, Covid-related obstructions and demands affected weaknesses in the global supply chain, which made unloading and shipping more expensive... and distributors/retailers realized that they could just charge more... or as much they wanted to.
posted by ovvl at 7:02 PM on May 9, 2022 [3 favorites]


Best answer: Revealed: top US corporations raising prices on Americans even as profits surge

That’s a good starter article on profit taking. It’s definitely duopoly / monopoly control (old fashioned greed and industry collusion) combined with record high shipping costs and worker availability challenges (complicated issue, not one sided).

Again: Inflation is happening globally. Interest rates will be steadily increasing from the Fed for a bit (which Jerome Powell wanted to do in 2018 but Trump wouldn’t let him to protect the “economy”, by which he meant the stock market).
posted by glaucon at 7:05 PM on May 9, 2022 [17 favorites]


Best answer: Here’s an interview with Jason Furman, Harvard economist and former Obama adviser, published today that touches on the causes of the current inflation, how long he thinks it will last, and what he thinks is needed to get it under control.
posted by plastic_animals at 7:13 PM on May 9, 2022 [6 favorites]


The simple answer is no, because inflation is happening across the globe and even as important as the US economy is, it can't cause that alone.

Another US specific thing is that we'd had almost a decade of minimal interest and inflation rates and extending it as long as we did (and in fact lowering it during Covid, which was basically necessary because we didn't know how bad things would get) created an inflation debt that was going to come due sooner or later. But that happened on Trump's watch.
posted by Candleman at 8:10 PM on May 9, 2022 [11 favorites]


Best answer: I have swing voter friends who plan to vote R next US election because they feel Biden has mishandled the economy

There's a very simple argument that should demolish this point instantly. In my experience it's the argument worth trying first, because if it works it saves a lot of time and trouble, and if it doesn't work then neither will anything else.

And it is this: How hard has the talking point in question been pushed on Fox News? Because the only reason any talking point ever gets pushed on Fox News is if having lots of people believe, amplify and act on it serves the interests of the billionaire class.

I cannot recall ever having seen any Fox News talking point do anything but malignantly distort reality in any field in which I have personal expertise. So it seems to me highly likely that everything else they say is also disinformation that it would be actively socially toxic for me to spread and/or act as if I believed.

Fox is manifestly the most nakedly propagandist of all the US news networks and, paradoxically, therefore also the most reliable: it tells barefaced lies almost all of the time. Absent specific domain expertise, then, simply adopting the opposite position from Fox on any issue is almost always completely sound.

Specifically, if the current Fox News line is that Biden has mishandled the economy (and it is) then that, in and of itself, is reason enough to adopt a working assumption that in fact he's doing the exact opposite of that.

If your friends remain unswayed by this argument then you could encourage them to start growing their own economics expertise by lending them copies of the excellent Econobabble, but I wouldn't hope for too much; propaganda, unfortunately, works a lot faster than education.
posted by flabdablet at 8:36 PM on May 9, 2022 [27 favorites]


prices went up 7% last year and I got a 1% raise; so lemme vote for the Republicans

Yeah! Look at all the money that Trump saved by firing all those firefighters. All that the fucking Democrats want to do is raise my taxes to pay for more of those people. And they're doing nothing about all these houses that keep burning down.
posted by flabdablet at 8:55 PM on May 9, 2022 [2 favorites]


A snarky response is "if you want to deal with inflation, stop buying stuff." (The snarky counter-response is "I've already stopped buying stuff because I can't afford it", but overall consumer spending stats show that people are buying more stuff.)

A less snarky response is that the Fed's commitment to its inflation target probably perpetuated the Great Recession by years. A lot of centrist economists got attached to the idea of a relatively high rate of "structural unemployment" when in hindsight (esp. 2017-covid) it became pretty clear that this was bullshit. The US ought to be back to pre-covid employment levels in a handful of months, though the Fed may have its say there. A semi-snarky response would be "more people with jobs or slightly lower inflation: which do you prefer?"

There are well-known individual examples, especially car prices and double-especially used car prices. Auto makers shut down at the start of the pandemic, expected a big downturn in sales, and cut parts orders to reflect those predictions, but demand didn't go down the way they expected. So there was a parts shortage (especially on chips) and a new car shortage and when there are no new cars the price of used cars goes up. That's starting to level off.
posted by holgate at 9:17 PM on May 9, 2022 [2 favorites]


Best answer: Since you mentioned eggs as an example, that specifically is bird flu.
posted by away for regrooving at 10:11 PM on May 9, 2022 [9 favorites]


Best answer: The thing that is the official definition of inflation is the Consumer Price Index (CPI). It is the change in the prices of a 'basket' of goods and services that mirrors what the average US household spends; that is, stuff people spend more on has a bigger effect on the basket, all else being equal. This link shows the components of the basket; the first column (CPI-U) shows the weights for all urban consumers. You can see that the CPI is grouped into a bunch of sub groups and sub-sub-groups, etc. So 15.157% of spending is on Food and Beverages, 7.772% of the total is spending on Food At Home (so about half of the total food spending is actually at home), 1.001% is Cereals and Bakery Products (1.001/7.772 = 12.8% of grocery spending is cereals and bakery products).

Everything people spend their money in is grouped in the CPI into eight basic groups; this graph shows the change in prices of the eight groups since 2015, with the price set to 100 in February 2020. (These graphs work best full screen on a computer.) You can see that the blue line representing the entire CPI is at 111; that is, prices are up 11% since February 2020. But you can also see that the blue line is the third highest line; that is, six of the CPI component prices have gone up at a slower pace than the overall CPI. Food, in red, is up slightly higher than the CPI. But transportation, in purple, has gone haywire; it was down 10% in May 2020, but has rebounded and is up 26% since February 2020.

Here's a second graph, of the transportation component and the major subcomponents. Some of them are actually down; Public Transportation (which includes airfare, taxis and the like as well as buses and subways) is down and Transportation Services (which includes Public Transportation as well as car insurance, rental and leasing, parking and registration, and maintenance / repair) is barely up. New car prices are up 13%, while used car prices have spiked; they were more than 54% up, although they're now dropping. Gasoline is the largest one, though; it's up 68% versus February 2020.

Similarly, here's food and beverages; the overall category is up 12.5%. Alcohol is up 6% and restaurant meals up 11%, so groceries are leading the charge. Meat is the grocery category that's up the highest, 20%, although this chart only has dairy, fruit&veg and bakery, all of which are below the grocery average, so I suspect that processed foods are also up higher than the grocery average.

So when you break it down, 'runaway inflation' is primarily due to a few specific subcomponents of the market -- gasoline, used cars and groceries (especially meat). Gasoline prices basically move 1:1 with oil prices, so that's what's causing that; used cars were also mentioned above.
posted by Superilla at 12:25 AM on May 10, 2022 [15 favorites]


Inflation here in india where I am at the moment is running 6% and accelerating rapidly. No Biden here. These are not serious arguments you’re engaging with.
posted by Exceptional_Hubris at 12:51 AM on May 10, 2022 [12 favorites]


Inflation in Poland: 12.3 and growing. In our case on top of a weak currency (idiots not adopting the euro back when we actually fulfilled the requirements) and being next door to Ukraine, big spending on rather non-targeted social programs and general bread and circuses stuff contributes. Honestly, our right-wingers' social programs would have them tarred and feathered in the most-left US states. Biden contribution: nil.
posted by I claim sanctuary at 1:35 AM on May 10, 2022 [8 favorites]


Inflation in New Zealand 6.9%, from 2.0% year ago, lot of supply chain issues, severe drought trend (although being under-emphasised) forcing buying 1M tonnes of coal from Indonesia.

Extreme labour shortage resulting in wage increases. Also last right wing govt ran down reading and hospitals, so this govt has been spending under urgency, roads are shut I many regions.

Fuel will get worse as this govt has closed our only oil refinery (climate ideology is over ruling science in all of govt. and the ministries.

I could go on but realised I was ranting about the things our GOP-lite are ignoring.
posted by unearthed at 2:08 AM on May 10, 2022 [3 favorites]


UK is predicting 10% inflation, for what it's worth. It ain't your government, it's the state of the world (Pandemic related shortages! War related shortages! Climate disasters!) I don't think governments really know how to fix inflation either, your best hope is to vote for the government least likely to let you starve as it happens.
posted by stillnocturnal at 3:52 AM on May 10, 2022 [9 favorites]


Inflation here in india where I am at the moment is running 6% and accelerating rapidly. No Biden here. These are not serious arguments you’re engaging with.

Doesn’t matter if they’re serious. Those are the arguments being made and, if you don’t engage with them, they will stand as fact for most of the population.

I’m seeing tons of R ads that make it very clear that the current wave of inflation is going to be used by Rs as an excuse to leverage tax cuts, both state and federal, in a “nuke it from orbit” way, furthering the main underlying goal of putting government out of business.
posted by Thorzdad at 4:55 AM on May 10, 2022 [3 favorites]


Best answer: IMHO, it's more convincing to acknowledge that some government decisions did contribute to inflation rather than waving the whole thing away as Fox News or monopolist price gouging. Basically, the fed and government can undershoot stimulus, which is what we basically had for years following the 2008 crash (and elevated unemployment as a result) or they can overshoot, which produces higher employment and wages, but, also, inflation. There are lots of other issues in the world - including Russia/Ukraine and Covid in China - that are causing disruption and supply shock, which also feeds into inflation - but enormous government stimulus in reaction to Covid in 2020 also plays a big part. The key point is that there are tradeoffs in policy - without massive stimulus in the face of COVID we would have had unemployment and recession. That's more of a fed story than a Biden story.

In terms of inflation in the rest of the world - it is true that inflation in India or wherever shows that the problem is not exclusively caused by Joe Biden/Jay Powell, but also the world is interconnected and the US is the largest economy, so inflation in the US (or elsewhere) can contribute to inflation in other places too. I.e., you can't say "what do you mean I set my house on fire? My neighbor's house is on fire too!" Not that I think Joe Biden caused inflation, but it's just not a super convincing point in my view. I think more likely is that central banks worldwide engaged in huge stimulus/easing over the past several years, which overshot in terms of inflationary effect. The US, being the biggest, had the biggest effect.
posted by Mid at 6:33 AM on May 10, 2022 [7 favorites]


A simple way to answer the question "Is [phenomena] the fault of [local politician]?" is to take a look at what is happening in other countries outside the purview of [local politician].

In case anyone hadn't noticed, inflation is currently an issue in a lot of countries.


Respectfully, this isn't a particularly strong argument. Covid was/is an issue in a lot of countries as well, and yet we still rightfully criticized the Trump administration's response to Covid. The Republican argument is not that Biden is causing inflation, any more than Trump caused Covid. The criticism is that he's not responding well to it, just as Trump did not respond well to Covid. There are reasons why that's the case, but "it happens everywhere, deal with it" is not going to be a response that the OP's interlocutors find satisfactory. It's not wrong to want to handle problems better than others.
posted by kevinbelt at 6:36 AM on May 10, 2022 [1 favorite]


I generally like Metafilter. But the left-wing echo-chamber reflected in many of the responses above is what I hate.

This is a difficult question. Though there are certainly a lot of political hacks arguing about this, there are also many really smart, intellectually honest experts who disagree. The New York Times editorial board sums it up accurately, if not very helpfully:

Economists continue to debate the causes of the current inflation.

Some place the blame primarily on the pandemic, which has caused sharp reductions in the availability of services and goods, driving up prices. With new vehicles in short supply, for example, used vehicle prices rose by more than 50 percent through January. More recently, Russia’s invasion of Ukraine has disrupted global markets for energy and wheat, driving up the prices of gasoline and food in many parts of the world.

Others, however, regard the federal government’s response to the pandemic as the key factor. On top of the Fed’s efforts to lower borrowing costs, Congress distributed trillions of dollars in aid. Despite widespread job losses, the average household had more money to spend, creating more demand for goods and services.

I'm not smart enough to know who's right, but I'd be shocked if the stimulus spending didn't significantly contribute, though clearly there were many other factors. That doesn't mean it was bad policy: Sometimes good medicine has negative side effects.

Also, I didn't see anything in the Obama-advisor Jason Furman interview linked above that directly addressed the question, but here's another one:

“To think $2.5 trillion in fiscal stimulus — amounting to 11 percent of GDP — would not cause inflation,” Furman explains, “required believing either that such a huge adjustment was possible within a matter of months or that fiscal policy is ineffective and does not increase aggregate demand. Both views are implausible.”

posted by Mr.Know-it-some at 8:19 AM on May 10, 2022 [2 favorites]


There is one policy that Biden could end that would help inflation some: tariffs.
posted by fiercekitten at 8:34 AM on May 10, 2022


Allright:

1) ignore all the dicks who say that "too much stimulation will hurt the economy" they have been wrong so often (and sorry but Obama was TERRIBLE on the 2008 crisis) like Jason Furman.
Look at this response: "We’ve seen strong wage growth feed into strong price growth and strong price growth feed into strong wage growth. I don’t see an end to that process with unemployment as low as it is today."

That dipshit is saying too many people are employed and getting paid too much. That's the subtext. How do you stop that? Lay a bunch of people off. Way to go professional economist. What a hero.

There is strong wage growth across the middle to lower end of economy. This is driving strong purchasing growth. Consumer Spending - 1960 onwards Look at the long dip during Obama's term. No wonder people where hungry for Republicans. That dip during COVID lasted 3 months. That's amazing. And the Fed deserves credit for that not derision.

Also:
Amazing consumer spending drives record profits. It's not complicated.

Grocery store profits are like 2.2%-3%. Grocery stores are not price gouging. Anyone that says they are must think most companies with normal 10% profit margins are really gouging, and FORTUNE 10 companies like Apple with 20%+ profit margins are basically criminals.

Gas makes up like 4% of the average consumers' budget. This chart is a bit old; maybe average spending is up to $3k for household spending now, but it gets a ton of press for not much actual spending. A big increase means that a small number of households fuel purchase should be subsidized, not that the economy should be crushed so that Joe Average pays less for food or fuel.
How much is your mortgage? How much press does that get?

Anytime any one says anything about a recession - that means laying the bottom 10% of the earners off. It's class warfare.
posted by The_Vegetables at 8:34 AM on May 10, 2022 [4 favorites]


Also: since the stock market is down this year, wage growth at the top end of the economy is a bit slower. It's not that big a deal.
posted by The_Vegetables at 8:35 AM on May 10, 2022


Also: if you personally only got 1% wage growth, you're basically an outlier. Most have had more wage growth than that, or you are not counting it correctly and only counting your salary growth and not your disposable income growth with the stimulus and various tax breaks. Or you are in the top percentage who earn a bunch via the stock market.
posted by The_Vegetables at 8:38 AM on May 10, 2022


I think there's an argument to be made that while Biden isn't responsible for inflation he's not concerned with dealing with profiteering that's piggybacking on inflation for record corporate profits. I don't think Republicans would be better, in fact they would be far worse, but it's the classic issue of Dems doing nothing to stop something and saying "at least we aren't the gop, vote blue!"
posted by Ferreous at 9:32 AM on May 10, 2022


Best answer: So, a macroeconomic way of looking at it, is that inflation happens when the amount of money added to the system starts to exceed the real production capacity of the economy. And the US Federal government's policies determine how many dollars there are in existence. I know people like to rag on macroeconomics, but

For example, if the government gives someone, say, $20 to buy bread, and there are wheat fields lying fallow, people available to work at the same wage, extra capacity at the mills and bakeries, trucks available to ship it, all of this available production capacity, then the government will essentially have summoned $20 worth of bread into existence. There was materials to do the job, people to do the job, but no capital to tell anyone to get it done. That's the magic of currency.

Now, if there isn't any more acreage to produce wheat, or workers to harvest it, etc, etc... there's now just going to be 20 more dollars chasing the same amount of bread, so the price will go up to absorb all that extra money and nothing extra will be produced. That's inflation.

Obviously reality exists somewhere between these two simplified, fairy-tale extremes. But it's the general idea.

The federal government has basically four levers to change the amount of money in the economy. There are two to remove money from the system. Obviously it can levy taxes and take the money out directly. Or it can borrow money by offering various sorts of securities like treasury bonds where people give the government money for the promise of gradually being paid back later.

There are two levers that "create" money. The obvious one here is spending. But the government also can create money by loaning it out, and having people promise to pay the government back over time.

Generally speaking the tax/spend levers are called "fiscal policy" and the "give loans/sell securities" levers are called monetary policy.

What the government optimally should be doing with these levers is to take money out of the economy from places it isn't being used to increase productive capacity and put it back into the economy in places where it will be. Though "productive capacity to do what?" is kind of the real political question. But no matter what you want to do, it's a similar recipe for doing it.

Now, monetary policy and capitalism is almost magic in this regard. People who have nothing better to do with their money buy securities to save their money for later. Companies who really want to invest in something take out loans from banks, and banks take out loans from the federal reserve, and money is more or less automatically transferred from "unproductive" sectors of the economy to "productive" ones. The federal government controls the rate at which these things happen by changing interest rates. Higher interest rates on treasuries the government sells means they sell more of them (but will have to pay them back later) and higher interest rates on loans means fewer people take out loans.

So when the news talks about the federal reserve hiking interest rates, that last lever is what they mean. The government makes taking out loans more expensive so people take out less of them and there's fewer dollars going into the system, and therefore, all other things being equal, there should be fewer dollars chasing the same production capacity, and inflation should go down.

Mind you, those monetary policy levers are the only ones the president personally has any direct control over by appointing, firing, and putting pressure on the chairman of the federal reserve. And obviously, the current inflation crisis isn't actually caused by, and probably can't be solved by playing with those levers.

But all things are not equal, and people don't actually mean "Biden" when they say Biden, they mean a democratically controlled federal government. So let's talk about what the problems are and what the solutions are.

So right now, there are a few major things. The government dumped a bunch of money into the economies to individuals and businesses (in about equal share, but business got a slightly higher share) to support the economy through the pandemic. Which worked! The economy didn't implode. But now that money needs to get removed from the system.

The pandemic has made a bunch of senior people retire to not get covid, caused many deaths and injuries, and generally made it harder to do things everywhere. I suspect we are also seeing continued aftershocks of people expecting an economic implosion that didn't happen thanks to government spending, so there's continued backlogs as business axed supply then realized demand was still there and scrambled to keep up.

And lastly, right now, Russia's invasion of Ukraine and the resulting consequences have made (fossil fuel based) energy much more expensive. Since everything takes energy to do, that basically reduces production capacity across the board.

Obviously, there are two things that need to happen in some proportion to reduce inflation. Dollars have to be taken out of the economy faster than they are being put in relative to right now, and real productive capacity has to be increased.

If we want to reduce the amount of dollars in the system, borrowing is kicking the can down the road, and not very far unless we are sure the economy's productive capacity is going to grow, so that's less than ideal right now. Increasing interest rates will stop as much money flowing into the economy, but that's also bad because then people can't as easily get loans and invest in new production capacity, so raising the interest rates too much has the potential to stall the economy. Likewise with cutting spending too much. The government, by and large, is actually doing useful things with money: public health, transportation, infrastructure, etc. So cutting that spending removes production capacity from the economy. Though there one thing the US spends a lot of money that doesn't generate a lot of direct economic return besides having given money to people: the military. It's liable that cuts there would cause the least short term harm at the possible expense of larger geopolitical risks.

The 100% obvious answer then is raise taxes on people who are not investing their money in actual production capacity increasing business ventures. People playing with real estate investments and various financial instruments, are by and large not investing in producing economically useful activity.

Then there are addressing the actual problems. These by and large will involve spending money now, and actually increasing inflation short term, to avoid lingering harm later. Though, if part of the bottleneck is indeed a shortage of workers, there is one thing to be done to increase real production capacity without spending money: increase immigration.

But as for spending to address real problems. It does appear that the pandemic has restructured economic patterns and strained logistics capabilities. So the government could alleviate that by investing in ports, railroads, and other things that increase the amount of stuff that can go from point A to point B.

Of course, the big elephant in the room is energy costs. Like I said earlier, everything takes energy to produce. If energy prices go up, then production capacity goes down and inflation goes up. We've known this since the oil crisis in the 70's when OPEC decided to restrict its supply of oil to the world. Russia produces a lot of fossil fuels. Since there's a war and embargos because of it, there just isn't as much fuel to make and move things. We can solve this by investing in ways of producing power and moving things that don't use fossil fuels.

Okay, that was way more long winded than I intended.

TL:DR version:
Inflation happens when the money supply gets bigger but production doesn't.

The causes for this happening right now are:

The money supply got bigger due to spending on support during the pandemic, which was necessary to avoid economic collapse, and appears to have largely worked, but now needs to be dealt with.

The pandemic reduced production capacity of the workforce by making people sick and dead and less interested in working jobs that expose them to illness and death.

It has also restructured what things people are buying which has strained a logistical system adapted to a pre-pandemic economy.

And massively, Russia's invasion of Ukraine and the ensuing embargoes have resulted in a lot of raw materials, especially fossil fuels, no longer being available to Western economies, which reduces the amount of stuff that can be made and moved.

The ways to solve these problems are:
In short term take money out of the economy by a mix of:
Increases taxes, especially on people who earn their money by owning things rather than making things.

Reduce spending, especially on things that do not directly affect infrastructure, public health, or other things necessary for people to go about their daily life.

In the long term
Invest in transportation, shipping, and energy infrastructure, especially the kind that doesn't rely on fossil fuels.

Invest in things that make fewer people sick or dead.

Just note that the long term options involve spending that will increase inflationary pressure short term, with the benefit of hopefully reducing inflation risk long term.

How much Biden is responsible for any of these things happening or not happening, you can decide for yourself.
posted by Zalzidrax at 9:42 AM on May 10, 2022 [17 favorites]


Even if it was largely caused by the stimulus, the first two stimulus packages were signed by Trump.
posted by catquas at 9:42 AM on May 10, 2022 [1 favorite]


I’m not an economist, but Walmart and Kroger account for nearly 40% of the U.S. grocery market. Walmart is tricky, since I can’t quickly find grocery-only numbers, but their overall profit margin is over 20%. Kroger, similarly, has a profit margin greater than 20%.

And for what it’s worth, I do think it’s fair to call it criminal when a company has 20% profit margins and employees who can’t afford to buy groceries.
posted by CtrlAltDelete at 10:50 AM on May 10, 2022


Though there are certainly a lot of political hacks arguing about this, there are also many really smart, intellectually honest experts who disagree ... I'm not smart enough to know who's right

and neither is anybody else.

Economics has always been largely a matter of informed guesswork, because economies are systems composed almost entirely of multiple mutually interacting feedback loops, many of them driven by sentiment and herd behaviour, whose behaviour is therefore inherently chaotic and simply not amenable to detailed prediction regardless of the quality of the modelling.

Modelling the economy is like modelling the weather but even less reliable because less constrained by physics. Also, unlike weather models, economic models themselves are parts of the very feedback loops they're attempting to model - their own predictions feed back into the system and affect its behaviour in often unpredictable ways.

The behaviour of an economy will therefore always remain somewhat surprising, and the smarter the analysts looking at it are the deeper their surprise will be, the more disconcerted by that surprise they will be, the more tightly they will cling to their personally favoured approximate models of the thing, and the more conviction they will display while shouting down the equally smart economists who disagree with them. That's just standard human behaviour and it happens regardless of how smart the humans involved are.

Economics is useful because quite a lot of it works quite well quite a lot of the time. But it's nowhere near as reliable as e.g. engineering, and anybody who thinks it is is just fooling themselves.

Also, discussions on the causes of inflation are almost always dominated by gross misuse of economic language and pseudo-economic arguments to push preferred political barrows; in the words of economist Richard Denniss (author of Econobabble, linked above): "Economics is like a tyre lever: it can be used to solve a problem, or to beat someone over the head."

People inclined to vote Republican on the basis that Biden is responsible for inflation are much much more involved with the beating over the head part than the problem solving part.
posted by flabdablet at 11:07 AM on May 10, 2022 [4 favorites]


Walmart .. their overall profit margin is over 20%.

That's the gross profit margin: how much they mark up goods. But they have to pay for stores, employees, etc., which means the net profit is much lower: around 2 percent. And Walmart is noted for being an extremely efficient retailer, meaning that they keep expenses low, and pass the savings along to their customers. (And yes, one way they keep expenses low is keeping salaries low.)
posted by Mr.Know-it-some at 11:23 AM on May 10, 2022 [2 favorites]


Best answer: The power of the executive in federal (aka, collection of independent states) government is highly fractured. In some arenas the president has almost unlimited discretion to make sweeping change. E.g., in most matters related to national security the commander in chief is the one directly calling the shots and the activity is occurring within the sphere of the federal government. In other areas, such as the economy, they have almost no direct power and mostly have to rely on the bully pulpit even when it comes to what the federal government spends. To put it another way, does anyone think that one-term presidents Jimmy Carter and George H. W. Bush deliberately allowed crummy economies to happen? The "Federal" Reserve is at least as important as the president and yet is only marginally part of the federal government. If you go back to Hoover, he certainly endorsed an economic model that was faulty and personally helped prolong the Great Depression. But it's hard to argue that for anyone after him. Sure, Obama and Trump might not have applied enough stimulus in retrospect, maybe Biden applied too much. But again, they did that with both houses of Congress agreeing. The president is constitutionally prohibited from originating spending without that agreement. With the massive drop in the economy from Covid, a few years of 1980s inflation caused by a moderate excess of stimulus is a comparatively minor economic problem compared to worldwide recession.
posted by wnissen at 1:58 PM on May 10, 2022 [2 favorites]


Response by poster: Thanks, everyone, for all the great and insightful answers to a pretty open-ended question. Zalzidrax especially gave me a crash course in macroeconomics. It's exactly as I already thought - inflation is a hugely complex topic with many causes and is not really caused by or solved by presidents or administrations in any simplistic way. I'm not sure if I'll be able to convince people who love to oversimplify things and assign blame (cough, Fox viewers, cough) but at the very least I feel more confident in my beliefs. I also will do some more self-education on economics in general.
Also, if it wasn't obvious, I'm about as far from the "Biden's fault" view as possible, although I did vote Warren in the primary. I am in favor of sharply reining in global capitalism, wealth redistribution, etc. Cheers!
posted by freecellwizard at 8:55 AM on May 11, 2022


From columnist Catherine Rampell at the Washington Post: "A conspiracy theory has been infecting the Democratic Party, its progressive base, even the White House. ... Call it “Greedflation.” ... The theory goes something like this: The reason prices are up so much is that companies have gotten “greedy” and are conspiring to “pad their profits,” “profiteer” and “price-gouge.”

...Why are companies, which have always been “greedy” (or, one might say, “profit-maximizing”), able to raise prices now? What changed between early 2020, when corporate profits and inflation were plummeting, and today, when both metrics are “unconscionably” up?

The answer is important, because it determines what policymakers can or should do about it.

...The greedflationists argue that something fishy is afoot because companies are not merely “passing along” their higher costs; their profit margins are expanding, too. But this is exactly what you’d expect when flush customers are buying more stuff and willing to pay whatever’s necessary to get what they want. Prices and profits rise.

...It may feel good to throw red meat to the anti-corporate populist left. Righteous fury about evil businesses earns plenty of retweets. But it has also hampered Democrats’ efforts to get inflation under control — and in so doing, sabotaged their reelection prospects.
posted by Mr.Know-it-some at 7:20 AM on May 13, 2022


I don't agree that "greedflation" is not a factor. I run a multi-million dollar products business, and you can be darn sure it crossed my mind that this would be a perfect time to be able to get away with a price increase under the cover of inflation. I didn't do it, but I easily could have gotten away with it if I wanted to. You can be absolutely sure that every other business owner and manager saw the exact same opportunity and many of them took it. People often talk about greedflation in terms of big companies, but hundreds of thousands of small and medium size companies sneaking in price increases this way can have a huge impact.

Because I believe greedflation is real, I also believe it will be a release value on inflation as soon as economic activity slows. I say that because greedflation leads to artificially high prices that can easily be lowered as soon as demand goes down and companies want to retain marketshare. In part for this reason, I believe whatever inflation we have will not be long lasting, and whatever recession we have will also not be deep and long-lasting.

I often think about what might cause the next recession. I had my eye on the crypto bubble possibly getting big enough to cause serious harm if it popped (what really worried me was when I started to see crypto creeping into retirement accounts). A good thing about our recent economic stumble is that it deflated crypto before it got big enough to cause more damage in an eventual implosion.
posted by Dansaman at 11:57 AM on June 28, 2022


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