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Biden Didn’t Cause Inflation or Supply-Chain Problems, But He’s Working to Solve Them

Republicans keep misattributing inflation to President Joe Biden and Congressional Democrats for working to continue the government spending Republicans supported last year to save the economy from complete pandemic disaster and to invest in projects and tax policy to undo the neglect and wealth hoarding wrought by Republicans under the previous administration. We thus must keep correcting them.

As usual, Rapid City capitalist John Tsitrian is on the job, explaining basic economics to our willfully blind Senator John Thune:

All of us are aware that prices have been increasing noticeably in the last year, with inflation growing at something like a five percent annual rate. Is government spending to blame?  No. This is about a spike in consumer demand coming after the horrendous drop in the economy during the pandemic-created recession, with that demand surge coming just at a time when we’re seeing the worst supply chain bottleneck ever.  Federal Reserve Board Chairman Jerome Powell states it plainly:  “Bottleneck effects have been larger and longer-lasting than anticipated.  While these supply effects are prominent for now, they will abate. And as they do, inflation is expected to drop back toward our longer-run goal.”

As to Biden’s stimulus program creating the inflationary surge that Thune predicts, 15 Nobel Prize winning economists disagree.  In fact, they argue precisely the opposite will occur, saying that inflationary pressures will actually ease if Biden’s plans go into effect.  A few weeks ago they wrote an open letter that concluded, “because this agenda invests in long-term economic capacity and will enhance the ability of more Americans to participate productively in the economy, it will ease longer-term inflationary pressure” [John Tsitrian, “Thune Says Biden’s Plans Will Cause Inflation. History and 15 Nobel Prize Winning Economists Say Thune Is Full of It,” South Dakota Standard, 2021.11.01].

Reuters notes that the global inflationary uptick can’t have come from the policies of one nation’s nine-month Presidency. Reuters points instead to rebounding global energy demand and huge household savings stoked by last year’s much bigger coronavirus relief finally unleashed in this year’s more open markets. Reuters also reminds us that the supply-chain snarls that are driving prices up come from accelerated demand (that’s what I said!) and long-standing just-in-time inventory practices:

Republicans also want to blame Biden for the supply-chain shortage that has contributed to inflation.

But experts say the COVID-19 pandemic has disrupted every aspect of the global supply chain, from manufacturing and transportation to logistics, and not only in the United States but worldwide, at a time when the pandemic has also sparked a buying spree. The problem is partly due to a decades-old business strategy that aims to keep inventories lean [David Morgan, “Explainer: Republicans Blame Biden for Inflation, But Are They Right?” Reuters, 2021.11.01].

President Biden is pushing a variety of government actions to ease supply-chain bottlenecks, including stockpiling more resources to reduce the chances of just-in-time disruptions. Just-in-time manufacturing still makes some sense—manufacturers cannot afford to maintain enormous inventories—but factories keeping lean inventories depend on robust infrastructure to deliver the parts and raw materials they need when they need them, and President Biden has been advocating (and South Dakota Republicans have been resisting) infrastructure upgrades all year.

Blaming President Biden for inflation defies the facts: manufacturing has been roiled for a year and a half by the shocks of a pandemic that overturned the assumptions of steady availability of parts, materials, and labor, and the current President is working harder to enact real policy solutions to the resulting supply-chain problems than the previous administration ever could. Today’s Republicans are obviously more interested in laying false blame for problems for more political gain than in solving problems for the common good.

17 Comments

  1. O 2021-11-02

    It is galling to see all those offended by “you didn’t build that” to now decry the government for not working hard enough to keep their business interests chugging ahead — no matter the obstacles. Again, the owner class demands their big government socialism policies to keep their pockets well filled.

  2. Porter Lansing 2021-11-02

    Economics 101 as I was taught at USD Business College – Vermillion, SD – 1971

    Demand is up
    Supply is down
    Inflation is inevitable

  3. Loren 2021-11-02

    Thune is not “willfully blind,” but rather a GQP robot. Charge him up, program his talking points and send him out to the latest photo op. It’s getting difficult to keep track of his ever-changing positions… deficits, judicial nomination protocol, crotch grabbing, blackmail, insurrections… Perhaps, one more time around the Benghazi circle, Johnny?

  4. O 2021-11-02

    Porter, actually the government can also use monetary policy through tax policy to help control inflation. By taking more cash out of the economy, they can slow inflation. That seems to be a solid reason — along with basic decency — to reverse the cuts that have been dolled out to our wealthiest.

  5. Porter Lansing 2021-11-02

    O … I’m explaining macro but thanks for expanding into ways to mitigate the problem, of which there are many.

    The economy “inevitably” moves faster than policy, especially when there’s been four years of severe neglect and malfeasance.

    Making policy changes on a situation that will soon fix itself and taking energy away from Biden’s infrastructure/income inequality leveling plans isn’t what we currently need.

  6. O 2021-11-02

    Porter, I cannot help myself; ANY time I can find a way to justify forcing a discussion of increasing taxes on the wealthy, I am there. Turns out there are not many problems I cannot fix with more taxes on the wealthy. Cheers!

  7. Porter Lansing 2021-11-02

    Cheers, O.

    I’ll turn my focus to Neal’s link to a John Tamny article on the supply shortage.
    -But first let’s see where Tamny sits before we can assess where he stands.
    -Tamny edits Real Clear Markets and Real Clear Markets is rated on the extreme right side of right-center.
    -That means Tamny often publishes factual information that utilizes loaded words (wording that attempts to influence an audience by appealing to emotion or stereotypes) to favor conservative causes).
    -Tamny says we don’t have the problems with inflation and supply that we’re all experiencing.
    -We’re being controlled by Soviet ideals of central planning.
    -These shortages are because we’re not letting the “free marketplace” run rampant, any longer.
    -Sorry, Tammer. All the goods we need have been constructed and are sitting on ships, in our harbors but our ports are being operated by foreign companies that have little regard for what USA needs and especially what USA wants.
    -Chinese, Singaporean, and United Arab Emirates groups own 80% of our ports and aren’t about to lose profits by paying overtime or production bonuses just because it will help out a country other than theirs.
    -But, it’s good to have you back, Neal.
    -It’s a pleasure to see Cory dice you up like an onion on a fry cook’s cutting board.

  8. Donald Pay 2021-11-02

    Neal,

    Adam Smith was a great example of a man who didn’t work a day in his life. He inherited wealth at a young age, his mother being a female and not able to inherit. Mr. Smith was kind enough to let his Mommy stay around to cook for him for the rest of her life, which, if you read his economic writings, wasn’t considered “work,” and so did not go into his calculations of economic output. He was rather a man of his time, but not of ours.

  9. Jake 2021-11-02

    Donald, ‘work’ may be an unknown word to Neal…..

  10. Cory Allen Heidelberger Post author | 2021-11-02

    Forbes nailed nothing. One of its bloggers simply invoked Adam Smith and a bunch of theoretical supposition with zero concrete examples to make it sound like the entire economy was converted to central planning between early 2020 and today.

    What hooey.

    The factories and shipping lines haven’t been nationalized. They’ve just been rocked by a pandemic that caused supply and demand shocks to which the just-in-time manufacturing system couldn’t adjust swiftly enough. The toilet paper shortages of March 2020 weren’t caused by central planning; they were caused by a sudden shift in public demand (worry and more pooping at home) to which the paper factories and transportation network could not pivot on a dime. And so on through every supply and demand shock since.

    Supply and demand is a far simpler and more realistic explanation for what we see happening; just-in-time practices mean manufacturers don’t have enough material reserves to either make more goods to meet demand, continue making goods when someone up the supply chain shuts down because lots of its workers are sick, or start making different goods to meet new consumer demands. Trying to stretch some vague, theoretical, and false partisan/ideological fairy tale atop what’s actually happening just makes you look dumb.

  11. Cory Allen Heidelberger Post author | 2021-11-02

    And if you still aren’t embarrassed to cling to the Tamny blogpost Neal cites, consider: Tamny’s argument is that “central planning” is bad for us and that the economy runs just fine on nothing but voluntary economic arrangements. But the problem has arisen because private actors have all volunteered to depend on multiple global partners to maintain a smooth supply chain and relieve each of them of the burden of being completely self-reliant and maintaining their own warehouses and production facilities. Economic actors willingly knit their own intricate network of global interdependence. They depend on suppliers and consumers to keep behaving as expected, without any sudden changes. Coronavirus came and shifted lots of people’s consumption and production patterns overnight, and all the economic actors’ distributed planning hasn’t been able to keep up. The only thing that saved a lot of their bacon from March 2020 through the pandemic has been centrally planned distribution of government checks to subsidize demand, something no private actor was willing or able to do at the scale the United States Federal Government (yes, sound trumpets with those capital letters) and other governments did.

    I recognize central planning can lead to oppression, Ladas, and other suboptimal outcomes. But the free market also fails and depends on the firm and friendly hand of government to occasionally take the wheel so the Invisible Hand of the market can recover from whatever ails it and safely drive again.

  12. Porter Lansing 2021-11-02

    Just In Time vs Just In Case

    A blend is the proper course ahead.

  13. RST Tribal Member 2021-11-02

    Let the campaign begin. RINO Thune is starting to lay the foundation of a tale of whom to blame in the summer and fall of 2022 for high gas and product prices. It’s not a theory the RINO Thune is spinning, it’s a fairy tale to the functional illiterate population in red states; like the state of four stone-cold faces and inbred Republicans in all the wrong places.

    RINO Thune knows his voters. The whole dumb bunch of them. As junior gasses up his out-of-tune 4-wheel drive pick-m-up truck, he is mad it takes almost half of his girlfriend’s SNAP. He thinks if costs keep going up, it might be time for another critter.

    As RINO Thune spins his tune, his voters tap to the cadence, the hand in the cookie jar Democrats start building a platform of nonsense. By November 2022 the story ends, winter weather settles in and RINO Thune is 6 years away from his tossing in the towel speech.

    Adam Smith is dammed. Inflation, deflation, words with meaning to others but not to RINO Thune’s voters. They measure their happiness by the price of gas, beer, hot dogs, and goofy presents for the little woman and her critters that might or might belong to the current guy in the house.

    It’s about campaigning. It’s about the spin. Not only that, but it’s about keeping the systems and institutions in place to dumb down the working group to enable slick glossy posters (remember America’s Governor glossy posters in Texas) to sway them to vote “right” in the booth. Heck, it worked well enough that RINO Thune voters fell hard for a financially broke, painted orange, overweight guy, with eye candy wife and critter daughters, who wouldn’t give those same voters the sweat off his underside if they were dying of thirst.

    Spin. Cadence. Illiterates.” Let’s dance to the voting booth”, said I, the declared RINO Thune shouts. Economic theories are dammed, it is what the voters want to hear, not what they need to hear.

  14. Guy 2021-11-03

    The President needs to work more closely with Senators Sinema and Manchin to come to a better compromise. If I were President Biden, I would definitely encourage the Left Wing in his Party, which includes Speaker Pelosi, to back off. Senators Sinema and Manchin are correct, without compromises from the Left, this bill is doomed to fail and will not pass.

  15. Mark Anderson 2021-11-04

    Oh come on Guy, Manchin and and Sinema are enjoying their fifteen minutes of fame anyone can do it now. As Biden said there are 50 presidents. Unless they compromise why should progressives compromise? They should just continue to hold up the infrastructure bill until they are passed together. Progressives have given in several times, not Manchin. Especially since Manchin’s loaded press conference the day before the elections in New Jersey and Virginia. As I’ve said before Biden won running on these items nationwide by well over 7 million votes. The majority of people in this country need to get peed off at all the BS of the middle of the roaders, all two of them.

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