Both Democrats and Republicans are pushing misleading narratives on inflation, because both parties stand to lose if the general public sees clearly on this issue.

The Democrats claim that inflation is due to the pandemic and Russian aggression or corporate greed, and specifically deny that government spending plays a role. Meanwhile, the Republicans gleefully blame the Biden administration for doling out too much pandemic aid money and driving up the price of gas by stifling domestic energy production, while they ignore the record-high spending of the Trump administration. 

Both sides are ignoring the primary cause of our current troubles, and they get away with it by conflating ‘inflation’ with ‘price increases’ — two terms that were historically understood to be distinctly different phenomena. Prices can go up in any industry for a range of reasons, including war, supply shocks, etc., and there are some increases that will result in broader ripple effects throughout the economy (such as rising energy costs). 

These are real factors that are affecting our current situation, which makes the “Putin’s price hike” or “Biden’s energy policy” stories appear plausible on the surface. Similarly, we all know that corporations are “greedy” when it comes to maximizing profits for shareholders — but that is a constant factor and explains nothing on its own. They didn’t suddenly become greedier in 2022. 

What we are experiencing is not specific to certain industries. It is an increase in costs across the board, following closely on the heels of an immense expansion of the money supply. 

We are living through a clear example of monetary inflation. If you increase the amount of money in the system without a corresponding increase in the amount of stuff you can buy with that money, prices will rise. More dollars in the system means that each one is worth relatively less. It’s not a problem caused by spending money, it’s a problem of creating money.  

If our government only spent money it had previously collected through taxation, the total quantity of money in circulation wouldn’t increase, and we wouldn’t see systemic inflation. Instead, our government spends money it doesn’t have. The Federal Reserve accommodates this spending by creating new money and diluting the value of all existing money in the process.  

This is “business as usual” and why we expect to see ~2 percent annual inflation in normal years. Absent this constant background reduction in the value of your money, the ordinary person could save dollars and expect that their purchasing power would maintain or even increase over time. Instead, Fed policy constantly erodes your savings in order to allow the government to spend.

Politicians (and their lackeys in the corporate press) do their best to obscure or ignore the fundamental relationship between money-creation and price inflation because they benefit from the government’s ability to spend now and pass the buck later. When the Federal Reserve creates new money, the government, federal contractors, and the big banks get to spend and loan out those dollars first — before they enter circulation — and cause prices to rise for everyone else (aka the Cantillon effect).This means that not only are they responsible for it, they also benefit from your hardship. Inflation is a means by which value is expropriated from the general public. 

In 2020, governors and politicians around the country chose to implement varying degrees of “lockdown” measures — all of which affected ordinary economic activity. Proponents speak as though the lockdowns were a natural consequence of the virus, but this is not the case. These were policy decisions that arguably did nothing to ‘slow the spread’. At the same time that they kneecapped economic production, our politicians started spending lavishly — and they haven’t stopped yet. 

Congress appropriated almost 5 trillion dollars, leading the Fed to increase its balance sheet from around 4 trillion dollars at the end of 2019 to almost 9 trillion today.  This massive injection of funds is what created our current predicament. The responsibility for the current inflation lies squarely with the government — both the Trump and Biden administrations, and arguably more with Trump.

Money from the government is never free. Ordinary annual inflation is a subtle form of theft from working people — a compounding erosion of the actual value of their savings. The COVID bailouts represent an unprecedented looting of the American people. As prices continue to rise, our politicians will seek to blame everyone else under the sun. Don’t let them shirk their responsibility.  Both Republicans and Democrats are responsible for the fiscal policy side of our current inflation disaster, both profit from it, and neither will be completely honest about it. Neither party wants to give up the power of the printing press. 

Katie Banuelos is the secretary for the Libertarian Party of Nevada — the only political party that is committed to sound money, abolishing the Federal Reserve, and scaling back the size of scope of government. Check us out at www.lpnevada.org.