An Inflation Fact No One Ever Mentions

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The consensus is that since the economy is the number 1 concern of Americans, current inflation will cause Democrats to definitely lose control of the U.S. House and possibly lose control of the U.S. Senate. But if the economy is truly America’s number 1 concern, then a never mentioned fact about inflation should mean Democrats keep control of both the U.S. House and Senate.

Reflecting the same sentiment that most other polls conducted in October have, a POLITICO/Morning Consult poll revealed that 90% of voters are concerned about the U.S. economy and inflation. 71% of voters said they were “very concerned” about inflation, 70% of voters believe the country is on the wrong track, 80% of respondents said that the economy would play a major role in deciding who to vote for this November, and a plurality of voters in the poll trusted Republicans more on the economy, jobs, and inflation.

All of these voter responses raise questions as to whether or not the real and understandable financial stress caused by inflation is clouding the judgment of American voters. For instance, 90% of voters are concerned about the economy, but it’s impossible to have the current 3.5% unemployment rate in a bad economy, in a bad economy employers can’t afford to offer jobs for people to fill. In this current economy, employers are having trouble finding people to fill jobs they have agreed to pay increased salaries for because there are more jobs than available people, a phenomenon that only a strong economy can produce.

In terms of inflation, while the current 8.2% rate is inconvenient for some and very very difficult for others, an inflation fact no one ever mentions is generally you don’t have inflation in a bad economy because the decreased economic activity in a bad economy can’t support inflationary price increases. In fact according to the U.S. Federal Reserve Bank, the federal entity whose job it is to manage inflation, if inflation is too low it can harm the economy so it recommends for the good health of the U.S. economy an annual 2% rate of inflation, which the Federal Reserve says allows both “households and businesses to make sound decisions regarding saving, borrowing, and investment, which contributes to a well-functioning economy”.

Based on New Keynesian economics inflation has three root causes: 

Demand-Pull Inflation– occurs when an increase in the supply of money and credit creates demand for goods and services that increases more rapidly than the economy’s production capacity. This increases demand and leads to price rises. In other words, there is too much money to spend and too few products to buy.

Cost-Push Inflation– also referred to as supply shock inflation is caused by a drop in aggregate supply or potential output. This may be due to natural disasters, war, or increased prices of inputs. For example, a sudden decrease in the supply of oil, leading to increased oil prices, can cause cost-push inflation. All producers for whom oil is a part of their production costs could then pass this on to consumers in the form of increased prices. In other words, the Covid-19 virus, Vladimir Putin’s war on Ukraine, and Saudi Arabia all have caused a decrease in the supply of products, food, and oil resulting in the true reason for the current price inflation.

Built-In Inflation– as the price of goods and services rises, workers may demand increased pay to maintain their standard of living. Employers make up for the increased labor cost by increasing the cost of their goods and services. In other words, employees deserve and legitimately demand that a pay increase mean something and affords them a higher standard of living, not a lower or same economic place standard of living. On the other hand, employers deserve and legitimately want to increase their profits, creating an employee-employer fairness balance that can be challenging to achieve in a bad economy but very possible in the current strong economy.

Based on these 3 causes of inflation Democrats can be blamed for 2 of the 3, demand-pull inflation and built-in-inflation. The Covid-19 virus shutting down production lines and supply chains worldwide, Vladimir Putin’s war on Ukraine, and Saudi Arabia’s OPEC Plus oil output reduction can be blamed for cost-push inflation or more accurately supply-shock inflation to the American economy.

In other words, due to Republican incompetence the Covid-19 virus infected more Americans than it was possible to prevent, killing hundreds of thousands and shutting down America’s entire economy (supply-shock inflation). To their credit Republicans are responsible for forcing the creation of a lifesaving vaccine in record-breaking time, less than a year, to their discredit before and after the virus creation Republicans told Americans they were on their own in terms of getting masks, ventilators, or the vaccine.

In response, Americans voted in 2020 to give Democrats control of the White House, U.S. House, and U.S. Senate. Democrats provided the vaccine free of charge to all Americans and invoked the Defense Production Act forcing America’s industry to produce the badly needed masks and ventilators. Democrats provided stimulus funds to all of America’s state and local governments replacing lost tax revenue due to the economic shutdown and avoiding massive government job layoffs. Democrats provided stimulus funds to America’s medium and small businesses to replace lost revenue, also because they received none of the stimulus funds Republicans provided to all of America’s fortune 500 corporations, and Democrats extended for one year increased federal unemployment payments to those who lost jobs due to the economy shutdown (demand-pull inflation).

President Biden and Democrats cut the unemployment rate nearly in half after only 1 year of full political control

Because Democrats stepped up and provided medical and financial resources to all Americans, to all American businesses, and to all state and local governments a completely shut-down American economy roared back to life, creating a record-breaking 6.6 million jobs during President Joe Biden’s first 12 months in office. Democrat’s roaring economy created a scenario where more people than before the economic shutdown had more money in their pockets than there were products to buy (classic demand-pull inflation). The product shortage continues because the supply chain of products is still recovering and being rebuilt after the Covid-19 virus completely shut it down.

Since the stimulus funds to the virus-unemployed provided the “little breathing room” President Biden commonly refers to, the virus-unemployed said to their former employers we won’t return to work for the low pay which will take away the little breathing room we now have, they demanded and received a pay raise (classic built-in inflation).

The inflation of a strong economy is much easier to defeat than the deflation of a weak economy

The inflation voters are threatening to vote Democrats out over is not the inflation Democrats should be blamed for. Because it’s been over a year since any individuals have received the $1000 direct payment or the stimulus-enhanced weekly unemployment cash, all that money has long been spent into the economy. There is only one reason why people still have more money to spend than there are products to buy, it’s because of a strong economy with millions of new increased-pay jobs created, not stimulus fund handouts from the U.S. government. The current inflation wreaking havoc on the economy is supply-shock inflation caused by Putin’s Ukraine War, Saudi Arabia’s oil reduction, and a national and international product supply chain not fully rebuilt.

American voters who are concerned with the current economics must remember the inflation fact no one mentions, you can’t have inflation in a bad economy because there is not enough money flowing in a bad economy to support price increases. The existence of inflation is the existence of a good strong economy which if the inflation is left unchecked will turn the good economy into a bad one.

For instance, one factor causing current inflation is that the economy created by Democrats is creating more jobs than there are people to fill the new jobs. This is why the U.S. Federal Reserve Bank has raised interest rates for borrowing money 3 times in 2022, in an attempt to weaken and slow down an American economy thought to be too strong.

Worried American voters must remember that inflation is the better and easier economic problem to have and solve. American voters must not confuse inflation with stagflation. Inflation is too much money and too many new jobs chasing too few products and too few people to fill the new jobs. Stagflation is little to no money flowing in the economy, no new jobs being created and prices continuing to rise as was the case before Democrats took control. All economists and President Biden would agree that it was much easier for Biden to reduce and keep down the price of gas than it was for him to transform a shutdown economy into a record-job-producing economy. It’s always easier to break down than to build up. And with inflation when the prices are eventually brought down the increased pay for workers created by Democrats’ built-in inflation remains. With stagflation, there are no new jobs, no pay increases, and continued price increases.

Inflation is occurring world-wide but thanks to the economic policies of President Biden and Democrats the rate of inflation is lowest in America

As American voters make their way to the polls this November the choice is clear, either Democrat strong economy inflation or Republican weak economy stagflation, because thanks to Putin’s Ukraine War, Saudi Arabia’s oil cut, and a Covid-19 handicapped national and international product supply chain, it will be one or the other for the foreseeable future.