Who Gets the Blame for Inflation

Consumer prices rose 7.0% in 2021, the largest increase for any calendar year since 1981. As a result, politicians across the political spectrum are working overtime to find someone to blame and attack.

Some politicians on the left are blaming “greedy” businesses for inflation. But we find this explanation completely ridiculous. Of course, businesses are greedy, in the sense that they’re run by people who are free to maximize their earnings!

But businesses are no greedier today than they were before COVID. In the ten years before COVID, the consumer price index increased at a 1.8% annual rate; in the twenty years before COVID, the CPI rose at a 2.1% annual rate. Both figures are a far cry from 7.0%.

Those blaming greedy businesses for higher inflation have no rational explanation for why businesses somehow missed all the opportunities to raise prices faster in previous decades but suddenly had a “eureka moment” and decided to do so in 2021. Under this economically illiterate theory, think of all the profits they’ve voluntarily foregone for decades.

Meanwhile, think about the rapid increase in workers’ pay in 2021, when average hourly earnings rose 4.7%. Did workers suddenly become greedier, too? Is all this greed contagious? Can we stop it by wearing masks? What does the CDC have to say?

But the political left is not alone in misunderstanding higher inflation. Some politicians on the right are saying the inflation is due to the huge surge in COVID-related government spending and budget deficits. Part of this is likely tactical: by blaming government spending and deficits, they can reduce the odds of passing the Biden Administration’s Build Back Better proposal, which they’d like to see defeated.