"We got a lot of incoming on this yesterday & look, the point that the president was making is that the factors that cause inflation were in place when he took office." - White House Press Secretary Karine Jean-Pierre answering a question on May 15 from Ed Lawrence (FBN) regarding Biden's repeated claim that inflation was 9% when he took office instead of 1.4% as reported by the BLS. (Note - KJP's quote is cleaned up grammatically & repeated "uh"s removed.)
The interesting thing about KJP's above statement is that it is correct - but she can't tell the public why without fingering her boss; namely that the highest inflation factor put in place under Trump in 2020 was $3.6 trillion of irresponsible stimulus deficit spending - the exact same type of irresponsible stimulus deficit spending that Biden did in 2021 to the tune of $1.9 trillion. KJP can't identify irresponsible stimulus deficit spending by Trump as the root cause of our inflation problem because it is the heart & soul of Democrats' answer for everything they see.
Professor Friedman taught that inflation "is always & everywhere, a monetary phenomenon. It's always & everywhere, a result of too much money, of a more rapid increase in the quantity of money than an output. Moreover, in the modern era, the important next step is to recognize that today, governments control the quantity of money. So that as a result, inflation in the United States is made in Washington & nowhere else." The great libertarian professor used graphs during his lectures that prove that there has never been an inflation in history that was not accompanied by an extremely rapid increase in the quantity of money & interchangeably there has never been an extremely rapid increase in the quantity of money without an inflation.
Professor Friedman explained that during Diocletian's rule of the Roman Empire (284 to 305) the money supply was increased by replacing the silver in full body silver coins like the denarius with a worthless alloy, until the denarius (once equal to a day's pay for a common laborer or a quart of wheat plus 3 quarts of barley)) became little more than a copper coin with a wash of silver. As silver was spread (i.e., the % of silver decreased) into more & more coins, the denarius lost value & prices were distorted by inflation.
We are currently seeing the definition of inflation play out - namely, what happens when too much money chases too few goods & services.
Conservative pundits like to blame our inflation misery (real wages are still 0.8% below 2019 levels) on Biden's signing of a giant $1.9 trillion stimulus bill as if Trump's $3.6 trillion spending spree the year before, including $900 billion in December, 2020, has nothing to do with our inflation. The conservatives never mention Trump's even larger contribution to the inflation problem &, since inflation started to rise during Biden's first full month in office, leave that fact out. But both Trump & Biden doled out direct deposits to adults & children & made substantial increases to unemployment benefits that made going to work less attractive than collecting these new benefits. The quantity of money was increased under both Trump & Biden & the amount of goods & services produced (i.e., the real GDP) was reduced. See graphic that follows.
The difference in Trump's case was that the lockdowns in 2020 provided a forced savings mechanism - i.e., there was no place to go to spend the money being doled out by the government.
Professor Friedman also taught that monetary changes (like the stimulus giveaways) have their effect (in this case inflation) only after a lag - that can be long & variable. (Professor Friedman's research over 18 business cycles in the 19th & 20th centuries showed the lag between monetary policy action & its economic effect ranged between 4 & 29 months, but also that there was little basis for knowing where in this range it would fall. Source - Bill Dupor, St. Louis Fed.) This is something akin to not feeling the full effects of being in a car accident until 72 hours after the accident. Source - my chiropractor.
Trump's spending binge in 2020 did not start to be felt with stepped up inflation until February, 2021. This lag is easy to understand - the lockdowns had gradually been lifted & as a result people were able to start spending the direct deposits & enhanced unemployment benefits they had saved. Unfortunately for Biden this noticeable stepped up inflation coincided with his first full month in office. Biden then signed the $1.9 trillion American Rescue Plan Act in March, 2021 - his second full month in office - further fueling the inflation that was just beginning. But note, inflation was on its way up before Biden signed one penny of inflationary stimulus into law. The following graphic illustrates this point.
In concert with the above, the following graphic illustrates that while the M2 money supply was increasing 15.7% in the three months from February to May, 2020 the real GDP was decreasing 9.5% from December 31, 2019 to June 30, 2020 - i.e., "a more rapid increase in the quantity of money than an output."
The above graphic shows that consumer spending - personal consumption expenditures, PCE - (the main component of GDP) decreased 17.6% from February, 2020 to April, 2020 due to the lockdowns. The graphic below shows the excessive savings (the amount above what would have been saved if there was no pandemic) that developed as a result of both Trump & Biden's stimulus spending being sent to people in a country in lockdown or partial lockdown.
Click here to hear KJP's exchange with Ed Lawrence where she blames everything she can think of to be the cause of our inflation problem except the real cause, namely irresponsible stimulus deficit spending signed into law by both Trump & Biden. To identify Trump's spending binge in 2020 as the root cause of our inflation that was in place in January, 2021 would necessarily implicate & connect her boss, Joe Biden, as a willing offender of the same thing in 2021 as well as expose the Democrats' playbook for government dependency & all the misery & mediocrity that follows.
