May 11, 2022

The inflation problem.

Inflation is crushing Americans. What can we do?

I’m Isaac Saul, and this is Tangle: an independent, ad-free, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Today's read: 13 minutes.

Biden addresses inflation and we get some new data. Plus, a reader question about trusting news sources.

Photo by Krzysztof Hepner / Unsplash

2,000 Mules.

A couple dozen readers have now written to me about the new film 2,000 mules, which purports to document election fraud in 2020. As many of you know, I was one of the reporters who gained traction for reporting on allegations of fraud in the 2020 race, and I've decided that this film — given its popularity — is worth covering it. So we'll be publishing a piece about it on Friday in our subscribers-only edition.

Quick hits.

  1. In West Virginia, the Trump-endorsed Rep. Alex Mooney beat fellow incumbent David McKinley in the 2nd Congressional District primary. In Nebraska, Republicans nominated Jim Pillen for governor over the Trump-endorsed Charles Herbster, who faced allegations of groping. (The results)
  2. Elon Musk says he would reverse Trump's Twitter ban if he becomes the owner of Twitter. Twitter co-founder Jack Dorsey said he agreed with the decision. (The ban)
  3. The U.S. intelligence community says Russia is preparing for a prolonged war in Ukraine that is likely to escalate and become more unpredictable. (The war)
  4. Gun homicides in the U.S. hit their highest levels since 1994 during the first year of the pandemic, according to a CDC report. (The numbers)
  5. Palestinian-American journalist Shireen Abu Akleh was killed in the West Bank on Wednesday. Al Jazeera and the Palestinian Authority say she was shot by Israeli military forces despite wearing a clearly marked press vest. (The shooting)

Our 'Quick Hits' section is created in partnership with Ground News, a website and app that rates the bias of news coverage and news outlets.

Today's topic.

Inflation. Yesterday, President Biden addressed the country on inflation, telling Americans he understands what they are grappling with and that solving the issue is his top priority. A spike in inflation has pushed the consumer price index up 8% annually, and the average cost of gas per gallon hit a new high on Tuesday.

"I know that families all across America are hurting because of inflation," Biden said in a speech from the White House. "I want every American to know that I am taking inflation very seriously and it is my top domestic priority."

Biden pointed to the Covid-19 pandemic, supply chain issues, and Russia's war in Ukraine as causes for the rising costs of goods. He also went on the offensive against congressional Republicans, criticizing Sen. Rick Scott's (R-FL) "ultra-MAGA" agenda that would "raise taxes on 75 million American families." Republicans and some economists have included the trillions of dollars of Covid-19 aid passed by the Biden and Trump administrations, as well as Biden's infrastructure bill, as causes. Biden said “some of the roots of the inflation are outside of our control.”

Inflation is measured using the consumer price index (CPI), which is designed by the Bureau of Labor Statistics to measure price fluctuations for urban buyers who represent the vast majority of Americans. The CPI tracks 80,000 items in a fixed basket of goods and services, including everything from gasoline to apples to the cost of a doctor's visit. On Wednesday morning, the latest inflation numbers were released, showing an 8.3% year over year rise in the CPI for April.  This was slightly ahead of the expected 8.1% increase, but down .2% from the 40 year high of 8.5% in March. Core CPI, which excludes volatile goods like food and energy, rose 0.6% month over month, higher than the 0.4% expected. Both numbers are concerning for the Fed and the Biden administration.

As we've explained here before, the Federal Reserve, headed by Jerome Powell, is primarily responsible for navigating inflation. One of the tools at their disposal is control of standard interest rates. If inflation is high, for example, the Fed could increase interest rates, which would dissuade certain spending by contracting the monetary supply — thus slowing inflation (For a simple explanation on this, go here).Last week, the Fed raised interest rates by half of a percentage point, the highest such bump in 20 years. In the historical context, though, interest rates are still low, meaning it's possible the Fed will have to continue to raise them to tamp down inflation. That has created growing fears that attempts to wrangle inflation will cause a recession, or consecutive quarters of the U.S. economy shrinking (the economy shrank at a 1.4% annualized rate in the first quarter, the first decline since the beginning of the pandemic).

Consumers are feeling the effects of inflation most acutely at the gas pump. The average price of a gallon of gasoline in the U.S. was $4.37 per gallon yesterday, a new all-time high. A month ago, it was $4.11, and a year ago it was $2.96. Inflation-adjusted gas prices are now similar to what they were in the early 1980s, but below the highs that we saw in 2008.  Meanwhile, industry data shows home prices have risen 18.8% in 2021, and rent has climbed 17.6% in the last year. Food inflation has risen 8.8% annually, and the cost of agricultural chemicals like fertilizers and pesticides has risen nearly 50% over the last year. Many of those chemicals are sourced in Russia.

Below, we'll take a look at some opinions from the right and left, then my take.

What the right is saying.

  • The right criticizes Biden, saying he needs to take a different course on inflation.
  • Some criticize the Fed for continuing to lie to Americans about the real causes.
  • Others say Biden's next big proposal, forgiving student debt, will only make things worse.

The Wall Street Journal editorial board said Biden should "do the opposite of his every policy instinct."

"The President again called on Congress to pass his Build Back Better, er, sorry, 'Building a Better America' plan including more subsidies for green energy, electric cars, child care, housing and more," the board said. "He also doubled down on his proposed billionaire’s tax—i.e., unconstitutional wealth tax—and Medicare drug price controls. Mr. Biden again blamed inflation on the pandemic and Vladimir Putin, omitting that Democrats poured kerosene on the accelerating economic recovery last March with their $1.9 trillion spending bill. Inflation was already at 7.9% when Mr. Putin invaded Ukraine. At the same time, their policies are hampering the supply side of the economy in myriad and interconnecting ways.

"Consider energy and food," the board said. "The Administration’s war on oil and gas created enormous regulatory uncertainty that is stanching investment in new production despite high energy prices. Producers can’t find workers. Many left the industry when prices nose-dived early in the pandemic and are reluctant to return because Democrats have promised to put drillers out of business. Then there’s the left’s blockade on pipelines, which is limiting natural gas production in the Northeast’s rich shale deposits... What the country needs is more investment to boost the supply side of the economy, which will increase worker productivity, real wages and living standards. Mr. Biden’s plan to hammer businesses and investors with increased taxes and regulation will do the opposite."

Steve Hanke and Kevin Dowd said the Fed is looking for inflation "in all the wrong places."

"When the Fed turned on the money pump, it reassured us that inflation wouldn’t appear. Once it did, the oracles at the Fed told us that inflation would only be temporary," they wrote. "The Fed and its Keynesian camp-followers cast around for scapegoats — they have blamed Covid-19, supply-chain disruptions, high oil prices, corporations not wanting to pay their fair share of taxes, price gouging, and, now, Putin. They blamed everything except the factor that was most responsible — the Fed’s own monetary policy, which financed the vast increase in government expenditures since March 2020. Of course, other factors did play a role, but the Fed’s boosters ignored the monetary elephant in the room.

"True to form, the Fed, as well as the White House, have the public looking for the causes of inflation in all the wrong places," they wrote. "The Fed still faces a monetary hangover that is entirely of its own making. Since February 2020, the Fed has flooded the 'monetary bathtub' by increasing the M2 money supply by a cumulative 41 percent. Money has been flowing into the bathtub much faster than it is draining out of either the real GDP “drain” or the money-demand 'drain.' When more money flows into the bathtub than drains out, money 'overflows' as inflation. At present, only roughly 25 percent of the money that has flowed into the tub since February 2020 has drained out to accommodate either the growth in real GDP or the demand for money, meaning that inflation will inevitably persist despite any hawkish action that the Fed now takes. So, the excess money in the bathtub (roughly 75 percent of the cumulative money-supply increase since February 2020) will overflow as inflation and will persist for at least the next two years."

In the Miami Herald, Nicole Russell said if you think inflation is bad now, just wait until Biden wipes out student loans.

"Sure, any adult who pays rent or a mortgage, a car loan, student loans, and monthly Amazon Prime/Hulu/Netflix/Starz/HBO/Disney+ subscriptions would love to have a small percentage of their monthly budget wiped out by a magical fairy operating as a really forgiving president, but the idea is asinine on many fronts," Russell said. "The president doesn’t have executive authority to wipe clean a debt knowingly and purposely accrued. The federal government issues more than 90 percent of all student loans, and the rest are owned by private banks and managed by the government.

"Forgiving student loans would add to inflation because that’s how the economy works. What do you think people will do when they suddenly have an extra $300-$400 a month?" she asked. "That’s enough for a small car payment (unless Biden wipes those loans clean, too!), or to put down towards a vacation or even a home. This sudden influx of spending into the marketplace will cause inflation to go up even further. It also would hurt the federal government’s bottom line: Canceling $10,000 per borrower would cost the federal government around $373 billion, while the estimated price of eliminating $50,000 per borrower would tally near $1 trillion."

What the left is saying.

  • The left says Biden is in trouble, especially because so few people understand inflation.
  • Some call out corporate greed as the cause of rising prices.
  • Others argue that Democrats are unfairly framed as worse on the economy than Republicans.

In MSNBC, Hayes Brown said Americans "don't get" how inflation works, and that is a problem for Biden.

"What most Americans don’t seem to get is what it means for the federal government to 'fight inflation,'" Brown wrote. "For that, we turn to another recent poll, this one released on April 30 by Axios and Ipsos. It found that 34 percent of respondents knew the Federal Reserve plays a role in fighting inflation. Encouragingly, 51 percent had heard the Fed had increased interest rates in March as part of its efforts to rein in price increases. But here’s the bad news for Biden: The vast majority of Americans don’t know the Fed is independent of the White House. Respondents were asked to identify whether the statement 'the President can order the Federal Reserve to address inflation' was true or false. Fifty-two percent didn’t know. Another 23 percent incorrectly said it was true.

"It's also not clear that Americans get what the Fed’s interest rate increases entail and what it hopes to achieve," Brown wrote. "Rate increases are meant to make it harder to borrow money, which in turn prompts saving by individuals and businesses instead of spending, cooling off an economy. What a cooler economy most likely means, though, is a rise in unemployment and a freeze in wage increases... So let’s say the government did what voters wanted and addressed inflation. That would involve either having the Federal Reserve boost interest rates even further — which Biden can’t order it to do — and trigger a recession. Or it would involve Biden’s going the Roosevelt/Nixon route and setting up price controls, which would require an act of Congress to make possible and would give the GOP a new 'creeping socialism' attack to trot out."

In The New York Times, Lindsay Owens said "corporate profiteering" is the real culprit of inflation.

"Curious how C.E.O.s were justifying higher prices, my team and I started listening in on hundreds of earnings calls, where, by law, companies have to tell the truth," Owens wrote. "What was striking in the earnings calls was not the supply chain shortages or companies’ typical profit motives; it was the plain old corporate profiteering. The Economics 101 adage that 'inflation is just too much money chasing too few goods' doesn’t come close to the full story. This raises the question: When companies are exploiting consumers in a time of national crisis, when should government step in? Companies that historically might have kept prices low to pick up profit by gaining additional market share are instead using the cover of inflation to raise prices and increase profits. Consumers are now expecting higher prices at the checkout line, and companies are taking advantage. The poor and those on fixed incomes are hit the hardest.

"The Federal Reserve chair, Jerome Powell, said that sometimes businesses are raising prices just 'because they can.' He’s right," Owens said. "Companies have pricing power when consumers don’t have choice. Sometimes this is because demand for consumer staples like toilet paper, toothpaste and hamburger meat is relatively inelastic. If you need a box of diapers, you need a box of diapers. Other times pricing power comes from concentrated market power. In industries like meatpacking and shipping — in which giants have over 80 percent of market share at times — it’s easier to take big markups when there aren’t major competitors to undercut you. What we learned on these earnings calls was quickly reflected in data. Despite the rising costs of labor, energy and materials, profit margins reached 70-year highs in 2021. And according to an analysis from the Economic Policy Institute, fatter profit margins, not the rising costs of labor and materials, drove more than half of price increases in the nonfinancial corporate sector since the start of the Covid pandemic."

In The New Republic, Timothy Noah defended Democrats’ record on the economy.

"The United States has had 17 recessions over the past 100 years. Want to guess how many began under a Republican president? Thirteen Republican recessions, including the absolute biggest downturns," he wrote. "Pick a metric, any metric. Economic growth? Going back to Franklin Roosevelt, the four presidents who logged the biggest growth in gross domestic product were, in declining order, the Democrats Roosevelt, Kennedy, Johnson, and Clinton, according to a February New York Times infographic by David Leonhardt and Yaryna Serkez. Three of the four presidents who logged the smallest GDP growth were Republicans... Job creation? The six presidents with the fastest job-growth rate (per Leonhardt and Serkez) were the Democrats Roosevelt, Johnson, Carter, Truman, Kennedy, and Clinton. The four presidents who logged the slowest job-growth rate were all Republicans.

"Median household income? Another roller coaster, per another Rosenberg graph. It goes up steeply under Clinton, then falls during George W. Bush’s first term, then rises during Bush’s second term, then falls hard in Bush’s final year. It keeps falling through Obama’s first term and then shoots up during his second," he said. "To be fair, the Obama increase in median household income continued under Trump. But on an inflation-adjusted basis, it started falling about halfway through Trump’s final year in office. The stock market? Up 226 percent under Clinton, up 145.4 percent under Obama, per Rosenberg and Tomasky. By comparison, it was up 45.7 percent under George H.W. Bush and up 36.7 percent under Trump. This is a rare metric where Trump doesn’t come in last; that honor goes to George W. Bush, who presided over a 23.7 percent stock market drop."

My take.

I'm quite nervous.

Inflation is such an intractable issue. And I don't see many good routes for the Biden administration to take. Americans are getting a very difficult lesson on the domino effects that exist in our economy and how easy it is to begin the topple. A simple example: Gas prices go up, which means the cost of shipping goes up, which means the cost of shipping food goes up, which means the price of groceries goes up, which means you have to pay more at your local grocery store. Throw in a labor shortage, which allows some of the workers running the ship or driving delivery trucks or checking you out at the cash register to be paid more, and now companies have to charge even more to keep profits stable. This cycle is hard to stop.

One of the most alarmist pieces I ever published in Tangle was about the supply chain issues facing the globe just before the holidays. A few months later I graded that story an F because many of the most dire predictions — empty shelves, weeks-long delays in gifts, falling retail sales and overwhelmed workers — didn't come to fruition. But if I were to grade it again now, I may bump it to a C-, since one thing that was right was the general framing that our supply chain issues were incredibly difficult to solve and not going anywhere soon. That has proven to be true.

Throughout our coverage on inflation, over and over, I've said that the causes were complex and multifaceted, rejecting any singular focus. I've also continuously expressed my fears (and beliefs) that this could turn into a long-term issue, which many readers got upset with me about early on. It may have been too speculative at the time, but it ended up being right. Looking back on my interviews with economists like Noah Smith and Brian Riedl, who expressed concern in April of 2021 about an inflation “spiral,” is not encouraging.

Today, there are two leading drivers for inflation that I'm becoming more and more inclined to call out: the Fed's monetary policy and corporate opportunism.

The former was not something I was sure of early on. I'm not an economist, and the intricacies are difficult to parse, so I've pleaded ignorance as often as I can on this issue. But with each passing month it seems more and more obvious that part of the reason inflation refuses to go away is the simple fact there is just too much money. Hanke and Dowd's National Review piece, cited above, is one of the most convincing stories on this I've seen yet, almost entirely because they quote economists and members of the Fed who are conceding they were wrong about inflation's transitory nature and the results of printing too much money. The amount of evidence it takes for people like that to reverse course on their public comments is high — and there are too many such people to be ignored.

The latter is an idea that I was almost allergic to because of its simplicity: Corporations are greedy, and they're jacking up prices because they can. But it's hard to deny the evidence any longer. Lindsay Owens' piece in the Times is a tour de force, with direct quotes from CEOs celebrating their ability to drive up prices and profits under the cover of inflation stories. The data are even more damning than the quotes: "Despite the rising costs of labor, energy and materials, profit margins reached 70-year highs in 2021," Owens wrote. "And according to an analysis from the Economic Policy Institute, fatter profit margins, not the rising costs of labor and materials, drove more than half of price increases in the nonfinancial corporate sector since the start of the Covid pandemic."

Owens calls for a federal price-gouging statute to stop companies from exploiting the pandemic any further. That solution is hard for me to embrace, given the heavy hand of government regulation it would require. But there's no doubt she's above the target when she talks about one of the core issues here: companies juicing their profits with little regard for the consumer.

Of course, none of this means the supply chain issues, the war in Ukraine, or Biden's energy policies don't play a role. Obviously, the pandemic is the core issue that set most of this off — the first gigantic domino to fall. But the better I understand where we are now, the more I sense these issues were prequels to both the Fed's monetary policy and the runaway corporate greed that are hurting us today.

Have thoughts about "my take?" You can reply to this email and write in or leave a comment if you're a subscriber.

Your questions, answered.

Q: How do we know that our "trusted" sources of information are actually reliable? Whenever I read about widespread mis-/disinformation (for example, ordinary Russian citizens who believe Ukraine is ruled by Nazis), I spiral into wondering how I would recognize if I were surrounded by such deeply-rooted propaganda. As a journalist, what gives you confidence in a news source?

— Ashley, Lawrence, Kansas

Tangle: We don't really know that our information is reliable. That's kind of an uncomfortable truth, and it should create a level of healthy skepticism in you. I think American "propaganda" is everywhere. In recent history, you can look at the way the media rallied the country around wars in Iraq and Afghanistan. Now that Americans better understand them, we are deeply critical of them.

That's not to say all information sources are alike or deserve equal skepticism, though. Just that it's okay to accept that even the most reliable news outlets get stuff wrong — sometimes egregiously so.

Honestly, I created Tangle because I don't think it's easy to trust news outlets unless you are taking in a story from a holistic set of sources. That's the whole concept behind this newsletter. Every reporter (and team of editors) at every news outlet has different sources, different original reporting, different access to stories, and thus will report those stories out differently. I wrote about this in my exhaustive piece on media bias.

Generally, my rules are: Trust news outlets with big teams. Big teams mean more eyes to catch mistakes, more people to protest misleading information, more editors to flesh out trustworthy content. Trust reporters who cover their own beats. If you are reading about agriculture, best to follow a reporter who covers agriculture for a living, not a 25-year-old general news reporter who drops in on a story once. Finally, suss out source information. If a story is about a video of a police shooting, watch the video yourself (if you can stomach it). When source material is accessible, access it. When it isn't, reserve some skepticism.

Most big, reputable news outlets and reporters won't publish something they know is untrue, because even if libel laws are hard to enforce, such an act can still destroy your reputation or cost you your job. But big news outlets also sometimes have corporate ties, powerful donors, rich owners and profit margins to hit. So don't forget to keep an eye on the money, too. At the end of the day, you should feel grateful that we’re not in Russia — we live in a country with robust freedom of the press, where diverse narratives are right at your fingertips. That’s a blessing but, sometimes, can make the world a lot more complicated.

Want to ask a question? You can reply to this email and write in (it goes straight to my inbox) or fill out this form.

A story that matters.

School districts are preparing to raise school lunch prices in anticipation of federal lunch programs expiring this summer. As part of the pandemic relief legislation, the U.S. Department of Agriculture increased reimbursement rates and loosened requirements for food nutrition and preparation, allowing schools to provide free lunches to all students regardless of parents' income levels. Approximately 90% of school districts served free meals, but that program is now set to end on June 30, and with the cost of food rising many parents are about to be hit with a new expense. Axios has the story.


  • 0.3%. The percentage that consumer prices rose in April.
  • 1.2%. The percentage that consumer prices rose in March.
  • 19%. The percentage that airfare prices rose in the month of April.
  • 35%. The percentage that airfare prices rose in the last three months.
  • 0.9%. The percentage that restaurant dining prices rose in April, the highest since last October.
  • 22.7%. The percentage that used car and truck prices rose over the last year.

Have a nice day.

Maria Alyokhina, the leader of the Pussy Riot band, has escaped Russia after being held under house arrest on trumped-up charges. Alyokhina is notorious for her anti-Putin protests that began in 2012, and has been sentenced to prison and house arrest numerous times for charges like "hooliganism." In April, Putin announced he would send Alyokhina to a penal colony as he cracked down on criticism of his war in Ukraine, so she decided it was time to leave. In a Hollywood-esque escape, she dressed up as a food courier to evade Moscow police, left her cell phone inside the apartment the police had been staking out, and made it to the border of Belarus. A week later she had crossed into Lithuania, where she gave an interview to The New York Times about her escape.

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