Inflation Blame and Fixes

Politics plays a role in macroeconomic issues such as inflation. I understand that some readers don’t want to read about more politics, but it is necessary to discuss the financial topic that’s on everyone’s mind.

Inflation is here. I’ve always said that I’d find some way to adapt to inflation. I’ve since come to realize that isn’t always possible. However, we’ve been doing fairly well to battle inflation. Take most people’s “big three” expenses:

• Housing – Our housing costs aren’t rising as our mortgage has stayed the same. We haven’t needed too many services such as plumbing, but I think we’d see rising costs there.
• Transportation – Our cars have been paid off for a little while now. The price of gas is high, but we are still working from home and not driving very much.
• Food – The price of chicken hasn’t risen nearly as high as the price of beef. We’ve been eating more chicken for a while now. It’s starting to get boring, so I may need to pony up for more beef. Ground beef is still cheap. I can notice prices are higher, but Aldi still keeps prices fairly low.

As bonus, computers are very cheap despite a lot of talk about how chip shortages are supposed to make them expensive.

As you can see, things have been good for us, but I can see how it is bad for others. I’ve seen rent go up. People trying to buy cars have to pay more now too. If you have a long commute the price of gas can be very challenging.

I hope you are only seeing mild effects from inflation. It might help you feel better to blame someone. However, blaming doesn’t make things better. We need true solutions.

Blame Joe Biden for High Inflation?

There are a lot of people looking to blame Joe Biden for inflation. While the President of the United States has a lot of power, he doesn’t control everything. He promised to end COVID through vaccines, but there are still a lot of people who haven’t taken them. Also, the delta variant made things ten times worse.

Consumers are upset that gas prices are rising. However, NPR explains quite well, Biden, or any US President can’t do anything about gas prices. Biden wasn’t the cause and can’t fix high gas prices. Over the long term, Biden’s policies on electric vehicles and solar power would drastically cut the cost of commuting.

What about food prices? The Conversation says that fuel prices, bad weather, and COVID are to blame. We covered fuel prices. Scientists have conclusively shown time and again that “bad weather” is due to climate change. Biden has pushed for better climate change policies, but again, this is a long-term solution. We might never be able to reverse the damage climate change has done, but the more action we take and the earlier we take it, the better we’ll be in the future. Finally, the closer we get everyone to being vaccinated, the fewer effects of COVID on the economy. Biden has done everything he can to try to get all Americans vaccinated.

What about housing prices? The American Action Forum explains that it’s all about COVID. There’s a combination of unprecedented demand and a labor shortage to create new housing. It seems like this was a limited-time phenomenon – I haven’t seen prices go up in a few months. As mortgage rates rise, prices likely fall and maybe get more acceptable.

Taking all these together, I don’t think it’s fair to blame Joe Biden. Any US President would have seen the same circumstances leading to the same inflation. However, there’s one last thing out there…

Biden (and his administration) approved a $1.9 trillion COVID stimulus package. This was on top of the 2.2 trillion CARES package and a $900 billion bipartisan stimulus that Trump signed in late December 2020. At the time Trump was disappointed that more money wasn’t given in the form of direct payments and called it a “disgrace.”

So putting specific politics aside, it’s easy to say that both parties agreed to put a lot of money out there. I don’t think this was a bad thing, it helped many people get by during a global crisis. There have been some very positive things to come out of it such as child poverty rates dropping to 5.6% from 14.2%. I’m not going to criticize the stimulus because I think everyone made the best choice they could at the time and I’d rather err on the side of helping people in a crisis and worry about inflation now.

All that said, it does need to be noted that there’s a lot of money out there and fewer products available due to the supply chain.

The Real Blame for Inflation?

Robert Reich, a contributor to The Guardian gives his compelling analysis for inflation, big corporate America. Specifically, he points out how industries have consolidated over several decades. This has left little competition. For example, he points out that Proctor & Gamble and Kimberly-Clark control the diaper market. When P&G said they were prices, Kimberly-Clark did the same. P&G’s profits are extreme, they don’t need to raise prices. P&G had enough money to spend $3,000,000,000 to buy its stock back. He gives a similar example with Coke and Pepsi.

What can fix this problem? He says the answer is better antitrust law. If that’s indeed a solution, the Biden administration is the first one I’ve seen in a long time that is looking to real antitrust action.

CNN has an inflation explainer. It places all the blame on COVID and getting vaccines, the result of going from 0 to 100 in the blink of an eye.

Final Thoughts on Inflation

Inflation is complicated. It doesn’t seem like there is a short-term solution. The good news is that the economy looks like is back on track. In addition to that, the stock market is hitting new all-time highs seemingly every week now. I know that there’s more to the economy than the stock market and retail sales numbers, but it also seems like Americans have more savings than they’ve had in years, maybe decades. Combine that with the aforementioned drop in child poverty and I feel like the economy is in a very strong place.

I’m even more optimistic about the future. The longer-term solutions (limiting climate change problems, limiting reliance on fossil fuels) seem to be heading in the right direction.

Maybe I’m looking at things through rose-colored glasses? What do you think? Let me know in the comments below.