Who is responsible for inflation, 1-15

Who is responsible for the massive inflation that the United States and the world have experienced over the last 12 to 24 months? Which individuals and organizations can we blame for the highest consumer price growth in 40 years?

Lately different people have been asking this question. The last time we saw a problem that created so much confusion, the country tried to understand who was responsible for the Great Financial Crisis (GFC). The method I have used to blame for the 2008-09 financial crisis is based on the premise that it is a challenge to diagnose the complex and real causes of the world.1 We can use the same method to question the cause of inflation.

People seem to prefer simple, binary answers to complex questions. Econ-Twitter will tell you “It’s the Fed’s fault; Blame Biden, no, it’s Trump’s fault“But the world is a much more complex place, if you pay the price of accuracy, it is not easily divided into clear black and white answers.2

Prices vary from moment to moment, but the factors that drive these changes can take years or even decades to form. We tend to ignore this, caught as we are Here it is. The reality is A lot Contributed to the current inflationary pressures.

There are 15 or more drivers of rising prices here, roughly. Most of the blame goes to the people at the top of the list, the bottom of the list is very humble but the real contributors:

The fault of inflation
1. Covid-19
2. Congress
3. President Biden Cares Act 3
4. President Trump Cares Acts 1 + 2
5. Consumer (additional expense regardless of cost)
6. Consumer (product transfer)
7. Russian invasion of Ukraine
8. Delivery on time (supply chain)
9. Fed / Monetary Policy
10. Wages / unemployment insurance
11. House deficit
12. Semiconductor / Automobile
13. Seeking corporate profits
14. Tax Cut (2017) / Infrastructure (2022)
15. Crypto

Let’s explore each of these:

Covid-19: The global epidemic – and the response by governments to deadly and unknown pathogens – has created a unique moment in history. Most workers were unable to go to their office or workplace. Essential workers rushed to provide services, keeping 100 million people trapped at home. It started a cascade of reactions that dramatically changed the structure of the economy with lasting effects.

Except for the epidemic, there is no huge financial stimulus, no WFH and no disruption to the supply chain.

Revenue stimulant: Cares Act 1, 2, and 3 present the single largest government response to a crisis – so far. Unprecedented in size and scope, the first CARES law was a $ 2.2 trillion stimulus bill that was signed into law by President Trump on March 27, 2020. Subsequently, CARES Act II is a $ 900 billion extension of the original stimulus and was signed into law by the President. Trump on December 27, 2021. The Cares Act 3 (aka the American Rescue Plan Act of 2021) is a $ 1.9 trillion economic stimulus bill that was signed into law by President Joe Biden in March. 11, 2021.3 It has already poured more fuel into the smoldering fire.

The First Cares Act was the largest economic stimulus package in U.S. history to account for more than 10% of U.S. gross domestic product; Including Part II ($ 900B) and III (1.9T), and the financial stimulus was $ 5 trillion. That’s nearly seven times the 2009 U.S. Recovery and Reinvestment Act, the 83 831 billion signed by President Obama in February 2009 in response to the Great Depression.

All of these financial expenditures were approved by Congress – so while you can argue about the distribution between Biden and Trump, it is Congress that controls government spending and so much to blame.

Products vs. Services: Work from home (WFH) events have led to a change in our eating habits: less service, more products. Out: Travel, restaurant, recreation, vacation, elective (non-emergency) medical services. Inside: Nesting from computers and desk chairs, makes homeschooling and WFH more tolerable. Expansion and renovation of the house has resulted in huge increase in demand for wood, landscaping materials, raw building materials, machinery and furniture.

The Starter East deficit reveals how much has changed radically.

Epidemic lockdown has removed consumers Towards the product And Away from service. Pre-epidemic, consumers spent 38.7% on products, but 61.3% on services. In 2020, product demand grew 20% worldwide, but production growth was only 5%. The price has gone up accordingly.

As an economy, we suddenly start buying food through Instacart / Amazon / Target / Walmart instead of eating; We bought a gym membership vs. Peletons; We bought big screen TVs instead of watching movies; We bought cars and winbags instead of going on vacation. Perhaps this is a good sign that used pilots can be found on eBay for a fraction of their new price.

Russian aggression in Ukraine: Food and energy prices had already been raised before the attack, but Putin supercharged their prices. Until this war is over, energy prices, such as grain and other foodstuffs, will continue to rise.

Consumers: People driving during rush hour complain of being “stuck in traffic” They are not stuck in traffic, They are traffic. A similar example applies to inflation: consumers who continue to buy homes and cars despite significant price increases are not suffering from inflation, they are (in part) The driver of inflation.

Think about buying a house or a used car, even if the price goes up, it’s ridiculous enough. When you buy a good one, despite the large increase, the demand can be described as “volatile”. So you pay (more) an inflated price to get the things you need. It may seem that you are suffering from inflation but (just like traffic) but you also acknowledge that it is a source of inflation.

Only time delivery / inventory deficit: In relentless efforts to become more efficient and profitable, warehouse inventory has become uncomfortable for corporate managers. It has dramatically reduced inventory costs but requires logistics and supply chains to be incredibly strong. It turns out, they weren’t.

Semiconductor (Autos): Reopening a temporarily closed chip fab is a complex expensive process. In 2021, the shortage of new and used cars was the biggest contributor to the price increase.

Housing: We have underestimated the demand for single-family homes, and then made them less for over a decade. Suddenly a lot of people want one. Admittedly large price increases result in smaller volumes.

The eviction moratorium also plays a role; The unintended consequence could be that landlords are raising apartment rents from 2020-21 to recover lost revenue from non-paying tenants.

In some contexts, the BLS reports that in 2021, on the days they worked, 38% of employed people did some or all of their work at home; 68% have done some or all of their work in their workplace. Compare with the pre-COVID-19 epidemic era of 2019: workers were less likely to work at home (24%) and more likely to work in their workplace (82%).

Wages: Over the past 4 decades, the bottom half of the wage scale has fallen dramatically. Minimum wage contribution Inflation. But nothing lasts forever, and the dynamics of that energy have changed. Workers, especially the lower half of salaried employees, seem to have achieved the upper hand. (We discussed this in April 2021).

Unemployment insurance: When you pay Americans $ 1.4 trillion for unemployment, they don’t want to work for $ 8 or $ 10 per hour. And, they form new businesses in record numbers.

Fed / Monetary Policy: ZIRP QE has done nothing for inflation for more than a decade, so it’s hard to stay at the top of their list. (I know the placement of this list will annoy the Fed haters, but I’m looking for accuracy). But once the financial stimulus started, the Fed was somewhat behind the curve. At the very least, the rate should have been normalized in 2021.

Tax cuts / infrastructure: In the interests of completeness, I am including the Tax Cuts and Jobs Act (TCJA) ($ 1.1 trillion, annually, from 2018 forward) and the 2022 Infrastructure Bill (minimum 10 1.1 trillion in 10 years). I don’t believe these are big contributors to the current price rise, but it’s a much more financial fuel for the fire.

Corporate profit search: I’m not in the camp that companies want to blame for price increases to increase their revenue and profits. However, as a consumer of the product, no one can help but notice a significant price increase in items that have very little to do with input costs, supply chain snaps, or semiconductor production deficits. Although transportation costs affect all products, we have seen some price increases only as people take advantage of inflation to raise their own prices.

You cannot have a capitalist system where companies, shareholders and their management are rewarded for profitability and do not end up with some dubious behavior / profit margins. But I suspect that by adding too much, the best estimate might increase by 5-10% (I would be interested to see if anyone has more information).

Crypto: Why is crypto on this list? 4 Because the huge profits have resulted in huge costs – from হে 100 million to the mansion as a result of hedge funds and VC cash in; But don’t ignore starter homes, where Redfin found that “11.6% of first-time home buyers say selling an investment in cryptocurrency has helped them save for a down payment.”

Lamborghinis have been selling for 2 years, and (fictionally) crypto profits are driving at least some of it. Some large dealerships are taking crypto as a means of payment.


The world is complex, but the human mind prefers simplicity, even at the cost of precision. As much as we want to point the finger at a single person – be it for biased reasons or just as a way to express our resentment – this is not how real world economies actually work.

The fact is that we have a number of factors that lead to higher prices – and some of them are showing signs of going up.

Products vs. Services (June 3, 2022)

Normalization vs. Inflation (March 14, 2022)

$ 1.395 trillion Peak Unemployment Insurance (March 4, 2022)

Structural or transient? (November 23, 2021)

How everyone miscalculated housing demand (July 29, 2021)

Elvis (your waiter) has left the building (July 9, 2021)

The Inflation Reset (June 1, 2021)

Changing the balance of power? (April 16, 2021)

K Doshi, 1-25 (June 29, 2009)


1. That approach eventually leads to the book Bailout Nation.

2. I have considered the causal question after the financial crisis and blamed many people and organizations. Fed Reserve Chairman Alan Greenspan was at the top of the list, the Federal Reserve’s monetary policy was # 2 and the Fed (again) as bank regulator was # 11. I originally titled that chapter of Bellout Nation Blame 1-25 but ended up with a list of 33 but could easily have made it 50.

3. The Tax Cut and Employment Act 2017 President Trump signed into law on December 22, 2017 and put $ 1.125 trillion into the economy 2 years before the epidemic.

4. I left out very weak to show players, such as anti-waxers, who delayed the resumption of the economy, and Facebook / Twitter and other social media, who spread their misinformation. Crypto is here because of housing and cars, but I put it at the bottom of my list. At a certain point, the influence of decent factors diminishes rapidly.

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