Michael Maharrey writes at Peter Schiff’s blog The Inflation Blame Game explaining how we got here and how the culprits are deflecting responsibility by accusing others. Excerpts in italics with my bolds and added images. H/T Tyler Durden
Now inflation is Russia’s fault. Or is it greedy businesses pushing up prices? Maybe a combination of the two.
It seems that government officials and central bankers are looking everywhere for a place to pin the blame for inflation except the one place they need to look — in the mirror.
I’m already seeing headlines about how Russia’s invasion of Ukraine is causing inflation. CBS broadcast this storyline on the first day of the invasion. As Peter Schiff put it in a recent podcast, Russia is the latest “excuse variant” for inflation.
It is true that the Russian invasion and economic sanctions have caused some prices to spike. Oil was over $130 a barrel over the weekend. Copper hit record highs. The price of wheat surged. But this is not necessarily inflationary. Inflation causes a general rise in prices across the board. In this situation, some prices will rise while others fall. As consumers spend more on food and energy, they will cut spending on other goods and services. Ostensibly, those prices will drop.
Inflation — an increase in the money supply — causes prices to rise more generally. It’s the result of more dollars chasing the same number of (or fewer) goods and services. As Peter explained, the culprit is the central bank.
“”What makes the prices go up is when the central bank responds to rising energy prices or rising food prices by printing more money, which is what they are going to do. Because as consumers have to tighten their belts because food is so expensive, because home heating oil and gasoline are so expensive, and they cut back spending on everything else, that causes a recession. And that results in the Fed printing more money, and that’s what’s inflationary.”
So, while the Russian invasion is certainly causing prices to rise, government-created inflation is still churning under the surface. In effect, we’re experiencing a double-whammy of rising prices.
Russia is a handy scapegoat for inflation, but “greedy businesses” continue to be the favorite target of central bankers and politicians. As I’ve explained, the narrative continues to grow because the average American doesn’t understand inflation or basic corporate accounting. That includes a lot of the people writing about inflation in mainstream and left-leaning corporate media.
And for politicians, businesses serve as the perfect scapegoat. Americans are already primed to hate big businesses.
During Jerome Powell’s testimony on Capitol Hill last week, virtually all of the Democrats in both the House and Senate repeated the “businesses are causing inflation” narrative. They talked about “record profits” and claimed businesses didn’t need to pass on higher costs. They also talked about a lack of competition.
This behavior is typical of politicians. They cause a problem and then clamor for even more government intervention to “fix” the problem they caused. They want to use inflation as an excuse to increase government regulation and intervention into the economy. Peter pointed out the irony in these congressional hearings.
“You have the chairman of the Federal Reserve that’s printing all the money fielding questions from the congressmen who are spending all the money that the Federal Reserve is printing. So, these are the two partners in crime that are 100 percent responsible for inflation, and they spend the entire hearing talking about how bad inflation is, what a horrible problem it is, and trying to point fingers at who might be to blame, without anybody accepting responsibility that inflation is not here by accident and inflation is not here because some businesses got greedy. Inflation is here for one reason and one reason only. The government isn’t spending money that it collects in taxes. It’s spending money that the Federal Reserve prints.”
If Congress really wants to do something about inflation, it needs to cut government spending. It needs to quit borrowing money and issuing debt that the Fed has to monetize. But obviously, they don’t want to do that. It’s easier to blame Russia or some greedy business than to do what needs to be done.
President Biden also blames everybody but himself for inflation. During the State of the Union speech, the president took credit for helping the economy grow through various government spending programs. But he went on to say a lot of the progress is being undone by inflation — as if inflation has nothing to do with the spending policies.
Biden ignores a critical part of the equation.
When the government spends money on any economic stimulus program, there is a cost. It either has to be paid for by direct taxation or by running a deficit. When the government runs a deficit, either future taxpayers foot the bill, or more often, the Federal Reserve monetizes the debt, prints money and creates inflation. As Peter put it, the government will pay for this government program one way or another.
“Either directly, through an honest tax, or indirectly through a dishonest tax called inflation. So, if Biden wants to claim credit for all this government spending, then he has to claim responsibility for all the inflation that was required to finance it. He can’t pretend that he gave taxpayers all this great stuff but then inflation came and stole it away from them. The inflation came from government. Government stole it. What the government gives with one hand, it takes with the other. So, Biden through government spending programs with one hand reached out and gave taxpayers some money, and with the other hand, he picked their back pocket through inflation to pay for it. So, you can’t say, ‘I love all this government spending,’ but then pretend that the inflation that was a consequence of that government spending had absolutely nothing to do with that inflation.”
That’s why Biden needs a scapegoat. That’s why members of Congress need a scapegoat. That’s why Jerome Powell and his minions at the Fed need a scapegoat. All of these officials need a scapegoat because they need to shift blame for the inflation that they created.
Not greedy businesses.