Too soon to declare inflation crisis. Partisan finger-pointing masks real causes.

All right, let’s talk a little bit about inflation and gas prices. Gas prices have been a long-time political football, sort of like debt and deficit, where you have both sides sort of playing the game in a lot of senses. Republicans playing it a little bit more. 

Now my position on gas prices for a very long time has been, the president has very, very little to do with gas prices, but gas prices are interesting because they sort of become a proxy through which any side can criticize any president at any time. 

And what you typically see is that if there’s a Democratic president and gas prices are high, Republicans blame the Democratic president, Democratic president and gas prices are low, Republicans say nothing. The flip side of that is if you’ve got a Republican president and gas prices are high, you’ve got Democrats blaming that same president. And if the gas prices are low, they don’t. 

The truth is gas prices have been increasing globally, number one. So if one believes that it is Joe Biden’s fault that gas prices are high. You would have to explain: what did Joe Biden do to make gas prices high in Canada or in Europe or in Australia? Places where gas prices are also high.

The reality is that the president has one major tool that they can deploy to affect gas prices directly. It’s to dip into the strategic petroleum reserve, which has not a super fast, has a delayed effect, but is believed that if it was done by a president at a time of high gas prices, it could lower gas prices by somewhere on the range of 18 to 20 cents per gallon, which is not nothing, but it’s also not, you know, it’s not the most significant amount for the average family.

If you consider a 20 cent a gallon difference. If you use 30 gallons of gas per month, you’re not talking about a lot of money, even for the average family. You’re talking about I think it’s $6 difference or something along those lines. So first of all, if we want to seriously talk about this, we should get off of this idea that the gas prices are directly related to the president. 

Now, the second part of this is that there’s a lot of lying happening from the right. Donald Trump recently did an interview on Fox News with Mark Levin, where he told multiple lies about gas prices.

Trump: “Look, when I left, gasoline was $1.87. That was a year ago.”

They were not, they were $2.20 a year ago. 

Number two, a year ago, we were much more heavily in a pandemic. 

Part of the reason gas prices went down in 2020 and have since come back up is related to demand. Demand went to very, very little.  When people started staying home during the pandemic this caused the decline in gas prices. And then as demand has recovered gas prices have gone back up. 

Donald Trump and others have also been saying gas is now $7.50 in California. It’s possible that super-premium somewhere was selling for $7.50. 

But as of a few days ago, the average gas price in California was $4.70. Not the cheapest it’s been for sure, still cheaper than Europe, but not $7.50.

So they’re playing very, very fast and loose with a lot of these things. 

And this gets us to the topic of inflation more broadly. Is there inflation happening? Yes, there is inflation happening. How much of it is because prices are being compared to a pricing lull during the pandemic, a little bit of it, but not all of it.

There really is inflation taking place. 

And number three: is the inflation the fault of Democrats or Joe Biden? And there is absolutely no evidence that that’s actually the case. And this is where a lot of these arguments fall very, very flat. 

If we really want to understand what’s happening with prices, it’s really not about Joe Biden.  And it’s not about Donald Trump, and it’s not about Ted Cruz or Pete Buttigieg or whoever. There was a time when Republicans were saying, oh, the supply chain issues causing price increases are because Pete Buttigieg is on paternity leave. That’s silly. Makes no sense.

If you really want understand this issue, you first have to understand why is it that a little bit of inflation is considered good, but too much is considered bad, but deflation is also bad. And to put that very simply to get us all on the same page, if there’s a deflation, if prices are going down, you wouldn’t buy stuff other than absolute necessities. Why? If you expect cars to be cheaper next year, you wouldn’t buy a car. If everybody did that, you would see car manufacturers say, well, we shouldn’t keep producing cars because people aren’t buying them. The employees at the car manufacturers would lose their jobs. Then they wouldn’t have money with which to go out and buy stuff. So that’s, what’s called a deflationary spiral. That’s why it might sound like if stuff gets cheaper, that’s good.

At the macroeconomic level that’s not considered good.

Too much inflation isn’t good because people can’t afford stuff. Prices go up too much. You want to buy before prices go up, but you can’t afford it.  So the reason that a little bit of inflation is considered good is a little bit of inflation, one, it incentivizes people to buy stuff now, rather and later, and number two, a little bit of inflation is what generates growth in the economy.

Now you could say, well, how much growth can – the planet has finite resources. Can there be indefinite growth? And the answer is maybe not, and that’s a bigger, longer term issue to deal with. 

So now understanding that a little bit of inflation is good and understanding how slowly these things move: Is the current inflation a crisis? Probably not for most people. 

We don’t wanna belittle or dismiss the reality that paying more in gas prices or paying more for groceries, even small amounts, affect people at certain income levels, but we need to wait to see what the long-term trajectory of these price increases are. 

We really need to be looking at minimum, quarter over quarter or year over year and comparing to wages. 

We are experiencing wage growth. And so at the end of the day, this is not Joe Biden’s fault. It’s not Donald Trump’s fault. And we need to wait to get more data, to really understand the scope and nature of the inflation that’s going on.

How boring, right?

It’s much more salacious and titillating to blame someone or to attack someone or to insult someone. But when we wanna really understand these macroeconomic issues, we actually have to step back, and we don’t even have all the data that we yet need.