Three economists walk into a bar and. . .

spend the rest of the evening arguing on whether to adjust the thermostat from 68F to 65, or maybe 72.

By Flickr user midnightcomm - https://www.flickr.com/photos/midnightcomm/447335691/, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=5596839

Not funny?

Neither are missing the point arguments economist out in the Twitterverse have about inflation, or elsewhere on the Internet.

Maybe we should have titled this thread "what causes inflation"?  If you are listening to economists or pundits on the topic, you probably don't actually know.

If you listen to right wing politicians, and economics is pretty political, you'll hear stuff like that put out by Dr. John Barrasso.  It's simple,  Inflation started on inauguration day when Joe Biden put his had on the Big Meter O' Gas Prices and personally shut down American oil production. All that needs to happen to fix it is to have Biden go down to the White House basement, find the Gas Thermostat, and adjust it.

Gas meters behind the White House where the President personally sets the price of natural gas.

That's nonsense.

So is "unleash American oil", or what have you. That's not what's going on.

If you listen to Robert Reich, the left wing economist, inflation is all caused by corporate greed. That's it.  Tax corporation and their heads, and it'll all drop back into price.

The cause of inflation, according to Robert Reich.

Sorry Robert, that's not correct, and I'm guessing in the middle of the night and ponder this, you know it isn't.

If you listen to NPR, and I do, it's all so complicated no mortal is capable of figuring it out.

Well, it ain't that complicated, either.

Apologist Jimmy Akin, who ponders a lot of non-apologetic topics, states that it's all caused by the government.  It isn't, but we'll start there.

Setting the inflation meter.

In normal times, and in a normal land, with a normal economy, there's a lot of truth to that.  In those circumstances, there are a lot of things that operate naturally, as long as the government doesn't mess with them.  You'll have a natural sized population, which may be stable, may be declining, or may be increasing somewhat, but it'll be in a sort of rough status in that fashion. And you have their "consumer demands". The cost of those demand is determined by supply.

The cost of government, in this scenario, is determined by its demands, which is paid for by taxes.

Pretty simple.

So how can that get off kilter?

In modern history, it got off kilter during the Great Depression.

With the Great Depression, the US turned to John Maynard Keynes.  Keynes believed that business cycles could be regulated through government spending.  If things were in the dumps, increased government spending could address it, but that spending had to be paid off in good times.

Yeah, right.

In reality, during the Great Depression, government learned how to deficit spend and liked it.  World War Two made it worse.  Ever since then, we've never really been able to reign that in, as Government likes to spend borrowed money it can't pay back.

The reason for that is simple.  People like getting money, but they don't like having to work or pay for it.  If you go from wherever you are today, in the US, and go anywhere, you're going to collide with things the Federal government bought with borrowed money.  You won't be able to avoid it.

Generally, the Federal government likes to keep the inflation rate caused by spending money it doesn't have right down around 3%.  I frankly feel this is immoral as inflation steals from people's wallets, but that's what they try to do.  It's decreasing the amount they have to pay back on their loans and gives them the extra cash to spread around without anyone really noticing inflation too much.

People should, and should, be up in arms about it, but they basically don't notice.

So, in the Jimmy Akin sense, yes, government causes inflation.

But, it's not that simple.

In the US, the government has also messed with the natural value of labor by inflating the size of hte working population through immigration. There's certainly outsized legal immigration, but there's also illegal immigration, which nobody did much about until fairly recently.  Immigrants are actually deflationary, as they work for less than native born Americans would in the same industries.  By the same token, however, if immigration is slowed, it causes wages to rise, as the labor pool shrinks.  If illegal immigration is slowed, it causes the artificially depressed wages to rise.  That's inflation, but it's also an example of wages seeking their natural level, effectively reaching the level they should have been.

This is important to keep in mind, as part of the way that the government keeps inflation down, in normal times, in spite of high borrowing, is by keeping wages down, through immigration.  Never raising the minimum wage plays into this, but the immigrant population, quite a bit of which is "off the books", plays into this.

That also serves to keep everyone in a household at work, which is a different topic we will address some other time.

So there you have normal times.

But what about abnormal times?

And we are in those.

It turns out that the Four Horsement of the Apocolpyse have a lot to do with causing inflation.

And when wars ride in, at least famine rides in with him.

In, other words, spite of what Jimmy Akin may think, a lot of current inflation has more to do with Vladimir Putin's government than our own.

Vladimir Putin, as we all know, has launched a war against Ukraine to bring it back under Moscow's heel.  Russia is failing badly at it.

A casualty of the war has been oil prices.  Oil is a globally traded commodity, and one whose value widely even in normal times.  Now the price has gone up because of the effort to take Russian hydrocarbons off the market to punish Russia.

Now, if only the price of things mattered in the world we could do what Trump probably would have done, which would have been to turn a blind eye to Ukraine's fate.  But that would have been a very dangerous thing to do.  It's still the thing that some Republicans want to do right now, but they seem to be a minority.

At any rate, this is why calls by people like Dr. John Barrasso to "unleash" American oil are wrong and won't work, which he probably knows.  The American oil industry isn't producing on all the leases it has now, in spite of the high prices.  Market instability is part of that reason.  If people like Marjorie Taylor Greene have their way, Russian oil will be back on the market, the price will drop, and having invested in American oil, which only makes sense if prices are high, would have been the wrong thing to do.

The price of oil is also high due to OPEC+, which operates to falsely set the price.  If the organization were a domestic organization, it'd get sued by the Federal government.  As it's international, it can't be, but it sets production to set the price and when it wants to raise it, it does. It recently did.

Russia is part of OPEC+

If the US really wanted to address this part of this issue, as we're always going to be subject to OPEC, we'd switch as much of the nation over to non petroleum energy as possible.  This gets into naysayers who say it can't be done, but it can be, and it's happening now naturally.  Of course, Wyomingites get up in arms about that too, as they fear that electric generation is going to omit coal, which is another topic. And on that topic, you don't just get to do what you want to do as it's good for you locally.  Most people know that, but they don't like to really believe that something that may be causing harm is doing that.  People elsewhere, however, will be deciding those things, not us.

And Putin's war has disrupted global food supplies as well.  Ukraine is often referred to as a "breadbasket", and it is. . . for much of the Third World.

Food prices, we'd note, are up in much of Africa by epic levels.

This impacts us too, as food has been a global commodity since ancient times.  If it's transportable, it will be traded long distance.

Of course, it's also the case that the US went to a "cheap food" model following the Second World War, which emphasized size and production. That was a mistake.  It would have been better to emphasize the producers and to have sought to keep as many people in agriculture as possible.  A more agrarian type of farm economy would cause prices to climb initially, but it would also help stabilize the market long timer, making some of it more local and all of it more direct.

For that matter, the whole scale up scaling of economic scale on the retail and production end of things achieved that as well. Robert Reich decries "corporate profits" without seeming to ever realize that for much of the economy, even now, corporations aren't necessary.  We don't need Walmarts at all, and for that matter, there's no reason that something like Twitter can't be corporate owned.  If changes like that were made, it would also damper inflation.

Be that as it may, should the Republicans take the House and Senate tomorrow, they're not going to introduce an anti-corporate ownership bill and bring back a more Distributist economy.  No way. And in spite of Harriet Hageman's agricultural roots, she's not going to introduce any bills directed at returning large scale agarianistic agriculture to the economy either.  

And as long as fuel and food prices are subject to the reestablishment of the Russian Empire, we're going to be in an inflationary cycle.

That argues for defeating Putin decisively and right now.  

Finally, there's the COVID effect.

A pandemic that kills 1,070,000 people is going to remove a lot of workers from the economy forever.  That's inflationary.

The necessary halting of imports from China, something Trump did right during the pandemic, was inflationary, however.  Giving credit for where credit is due, that needed to be done, but in the globalized economy, the econmy has never righted itself, just as it didn't after World War One when a highly globaized economy was also disrupted by the war, and then of couse the Spanish Flu followed.

Lots of workers stayed home during the pandemic, many during mandatory quarantines. Government efforts started under Donald Trump, not Joe Biden, to address this by addressing wage cessation amounted to sending people money, a lot of whom never needed it. That was inflationary.

The perceived and mistaken idea that something needed to be done to get people back to work, they would have done that on their own for economic reasons gave rise to infrastructure bills under Trump that expanded under Biden.  That was inflationary.

But here's the added things. Putin's war jump started inflation all over the globe, and as we're in a globalized market, that means one country's fever at least gets another one sick.

For example:

 CPI Austria Austria cpi september 2022 1.599 % 10.531 %

 CPI Belgium Belgium cpi october 2022 2.372 % 12.268 %

 CPI Brazil Brazil cpi september 2022 -0.290 % 7.169 %

 CPI Canada Canada cpi september 2022 0.066 % 6.858 %

 CPI Chile Chile cpi september 2022 0.859 % 13.728 %

 CPI China China cpi september 2022 0.291 % 2.783 %

 CPI Czech Republic Czech Republic cpi september 2022 0.801 % 17.973 %

 CPI Denmark Denmark cpi september 2022 1.305 % 10.019 %

 CPI Estonia Estonia cpi september 2022 0.321 % 23.648 %

 CPI Finland Finland cpi september 2022 0.780 % 8.119 %

 CPI France France cpi september 2022 -0.564 % 5.552 %

 CPI Germany Germany cpi september 2022 1.936 % 9.991 %

 CPI Great Britain Great Britain cpi september 2022 0.411 % 8.808 %

 CPI Greece Greece cpi september 2022 2.937 % 12.024 %

 CPI Hungary Hungary cpi september 2022 4.077 % 20.124 %

 CPI Iceland Iceland cpi october 2022 0.668 % 9.405 %

 CPI India India cpi september 2022 0.845 % 6.488 %

 CPI Indonesia Indonesia cpi october 2022 -0.106 % 5.710 %

 CPI Ireland Ireland cpi september 2022 0.000 % 8.175 %

 CPI Israel Israel cpi september 2022 0.187 % 4.594 %

 CPI Italy Italy cpi september 2022 0.263 % 8.866 %

 CPI Japan Japan cpi april 2022 0.396 % 2.422 %

 CPI Luxembourg Luxembourg cpi september 2022 0.257 % 6.879 %

 CPI Mexico Mexico cpi september 2022 0.620 % 8.700 %

 CPI Norway Norway cpi september 2022 1.372 % 6.894 %

 CPI Poland Poland cpi september 2022 1.586 % 17.254 %

 CPI Portugal Portugal cpi september 2022 1.226 % 9.281 %

 CPI Russia Russia cpi march 2022 7.613 % 16.698 %

 CPI Slovakia Slovakia cpi september 2022 0.908 % 14.170 %

 CPI Slovenia Slovenia cpi september 2022 -0.921 % 10.002 %

 CPI South Africa South Africa cpi september 2022 0.094 % 7.801 %

 CPI South Korea South Korea cpi september 2022 0.285 % 5.583 %

 CPI Spain Spain cpi september 2022 -0.696 % 8.872 %

 CPI Sweden Sweden cpi september 2022 1.429 % 10.838 %

 CPI Switzerland Switzerland cpi september 2022 -0.176 % 3.252 %

 CPI the Netherlands The Netherlands cpi september 2022 2.340 % 14.496 %

 CPI Turkey Turkey cpi october 2022 3.545 % 85.515 %

 CPI United States United States cpi september 2022 0.215 % 8.202 %

 HICP Austria Austria hicp september 2022 2.436 % 10.915 %

 HICP Belgium Belgium hicp september 2022 1.336 % 12.061 %

 HICP Czech Republic Czech Republic hicp september 2022 0.885 % 17.829 %

 HICP Denmark Denmark hicp september 2022 1.473 % 11.101 %

 HICP Estonia Estonia hicp september 2022 0.338 % 24.094 %

 HICP Eurozone Europe hicp september 2022 1.196 % 9.927 %

 HICP Finland Finland hicp september 2022 0.726 % 8.413 %

 HICP France France hicp september 2022 -0.511 % 6.232 %

 HICP Germany Germany hicp september 2022 2.176 % 10.899 %

 HICP Great Britain Great Britain hicp september 2022 0.569 % 10.142 %

 HICP Greece Greece hicp september 2022 2.956 % 12.117 %

 HICP Hungary Hungary hicp september 2022 1.850 % 20.673 %

 HICP Iceland Iceland hicp september 2022 -0.235 % 5.933 %

 HICP Ireland Ireland hicp september 2022 0.000 % 8.604 %

 HICP Italy Italy hicp september 2022 1.582 % 9.366 %

 HICP Luxembourg Luxembourg hicp september 2022 0.510 % 8.832 %

 HICP Poland Poland hicp september 2022 1.522 % 15.698 %

 HICP Portugal Portugal hicp september 2022 1.270 % 9.811 %

 HICP Slovakia Slovakia hicp september 2022 0.937 % 13.579 %

 HICP Slovenia Slovenia hicp september 2022 -0.284 % 10.629 %

 HICP Spain Spain hicp september 2022 -0.246 % 8.974 %

 HICP Sweden Sweden hicp september 2022 1.221 % 10.252 %

 HICP the Netherlands The Netherlands hicp september 2022 2.842 % 17.061 %

 HICP Turkey Turkey hicp september 2022 3.097 % 83.394 %

But also note that global inflation rates are expected to peak this year, and then steeply decline.

At any rate, in a globalized economy in which we depend on stuff with overseas sources to come here, when prices go up there, they go up here.  Put another way, when is the last time you bought a shirt made in the United States?

So, what should the government do, and by that I mean right now, to address inflation?

The most important thing it could do would be to make systemic changes that take the country out, as much as possible, of a system that is subject to foreign commodity and product inflation without falling into the falsity of autarky, which we'd note is, of course, inflationary.

That would entail moving the volatile energy sector over to stable, and frankly North American based, energy production.  Nuclear energy would be the best option for the US for domestic and transportation energy.  If we wanted an infrastructure bill, this should have been it.  It's not too late to do this through various means, however, including tax breaks where appropriate, and by removing subsidization, which occurs in places we're so used to use to we don't recognize them.  The national highway system, for example, is subsidized, which in turn amounts to a trucking industry subsidization.

We could also do this in the food and retail sectors through anti monopoly and frankly highly distributist policies that revested much of the economy at a lower level.  That would be inflationary in the short term, but stabilizing in the long term.

In the immediate short term, we could quit deficit spending on things that we don't need to, which is only almost all, but probably not all, things.  The Federal Government doles out cash like crazy under both Republican and Democratic Administrations.  There are a lot of things that the Federal Government takes care of that it could just say to localities, "you take care of it, it's yours anyway".  Quite frankly in quite a few instances local entities couldn't take care of it, at least not without tax hikes, but then those things would be paid for along the way in most instances, and where they couldn't be, there's likely an existential problem at work such that they shouldn't be.

And contrary to the Republican whining about "thousands of IRS agents" and the Democratic silence on taxes, the upper marginal tax rates ought to be increased.  Billionaires now control a frightening amount of the US economy and ought to be taxed aggressively. That won't reduce them to poverty, but would recapture money that should be recaptured.  And in inflationary cycles, a windfall profits tax should be put in place.

Finally, as grim as it is, the Fed ought to jack up interest rates to double their current amount and put a massive damper on the overheated economy.

How much of this is going to happen? 

Probably none of it.