Nov 15, 2021

Inflation rises (again).

Inflation rises (again).

Prices keep going up. Why?

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.”

First time reading? Sign up here. Would you rather listen? You can find our podcast here.

Today's read: 12 minutes.

We're breaking down inflation. Plus, a reader question about whether there was actually anything "there" on Trump and Russia.

Photo: Todd Lappin
Photo: Todd Lappin


Hoo-rah! We have some wrongs to right. First, a week ago, in my coverage of the Virginia and New Jersey governor's races, I said that Virginia hadn't re-elected a Democratic governor since 1977. Actually, that's a fact about New Jersey (a fact I accurately delivered a few times), and only one reader noticed the mistake. Shame on you!

Second, on Thursday, we published a widely-read breakdown of the Kyle Rittenhouse case. There were two errors in it, both of which (similar to the Virginia vs. New Jersey mistake) contradicted accurate information elsewhere in the newsletter. The first was a sentence that said Kyle Rittenhouse crossed state lines with a rifle he illegally obtained. This isn't true: He crossed state lines and picked up the rifle in Wisconsin, then went to Kenosha (Rittenhouse's hometown is just a short drive from Kenosha). I made this clear in another place in the newsletter but also muddied it with this mistake.

Finally, I twice referred to Jacob Blake, and in one instance referred to his "shooting" and in another referred to his "death." Jacob Blake is not dead (which, for whatever it's worth, I knew!). He is paralyzed. Neither of these mistakes change the thrust of my story, but they're errors nonetheless. I'm going to model being kind to yourself and count them each as half corrections, since they were contradicted elsewhere by my own writing.

Together, these are the 44th and 45th Tangle corrections in its 118-week history, and the first corrections since October 14. I track corrections and place them at the top of the newsletter in an effort to maximize transparency with readers.

Quick hits.

  1. Democrat Beto O'Rourke announced he is going to run for governor of Texas. (The announcement)
  2. Longtime advocates of paid family leave are trying to re-insert language to include it in President Biden's Build Back Better plan. (The fight)
  3. Attorneys will make closing arguments on Monday in the trial of Kyle Rittenhouse, who is accused of homicide and other charges after shooting three people during the Kenosha riots. (The testimony)
  4. Steve Bannon, longtime ally of President Trump, surrendered to federal authorities on contempt charges Monday after defying a subpoena to testify before the January 6 committee in Congress. (The charges)
  5. A group of Republicans will join President Biden at the White House this afternoon when he signs his Infrastructure Investment and Jobs Act into law. (The signing)

Today's topic.

Inflation. On Wednesday, the government said its consumer price index rose in October 6.2% from a year ago — the largest 12 month jump in 31 years, since 1990.

Reminder: 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, representing everything from gasoline to apples to the cost of a doctor's visit. The core price index, which excludes volatile goods like food and energy, also rose by 4.6% year over year, higher than the 4% rise between September 2020 and September 2021.

Because of the unique economic recovery we've been living in, economists have been debating whether inflation is "transitory" or not — fundamentally unsure  if it will pass on or settle in. Many on the left have argued that the inflation we're seeing is due primarily to things like supply chain snarls, and will resolve itself on its own as the economic disruptions shake out. Others have argued that inflation is the result of government spending, comparing our relatively higher numbers to many European countries experiencing supply chain issues, and saying we need policy changes as well.

Whether it is the result of persistent supply chain issues, government spending, consumer demand or a combination of all three, we have now had a fifth straight month of inflation above 5%. Inflation has risen high enough that hourly wages, which are seeing historic gains, cannot even keep up. Last month, average hourly wages in the United States actually fell 1.2% compared to October 2020 when taking inflation into account.

Gasoline prices are up nearly 50% from the same month a year ago, and may soon break their all-time high. Used car prices are up 26%. Groceries are up 5.4%, new vehicle prices up 9.8%, and the costs of tires and sports equipment rose by their highest margins since the 1980s.

The Federal Reserve, our central banking system, is responsible for addressing inflation. Headed by Jerome Powell, the Fed can take actions like moving interest rates, which can be used to mitigate inflation. 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).

You can read our previous coverage of inflation (from mid-October) here.

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

What the left is saying.

The left concedes inflation is happening, but argues that it's the Federal Reserve — not Biden, via legislation — who needs to address it.

In The Washington Post, Catherine Rampell argued that Democrats need to take inflation woes seriously.

"Inflation — visible in higher costs of gas, groceries, housing and other common purchases — is the main reason views of the economy are so dour, even as the job market looks relatively strong," she wrote. "And wages are rising. But … they’re not rising quickly enough to keep pace with consumer prices. Adjusting for the latest inflation figures, average hourly wages fell 1.2 percent from October 2020 to October 2021. Not good.

"Republicans will take political advantage of this frustration," she added. "Some already have. Presidents don’t control prices, though. President Biden has limited tools available for dealing with inflation, and it seems unwise to promise his agenda will do more to reduce prices than it actually can. In any case, price stability is supposed to be the purview of the Federal Reserve; unfortunately, the Fed’s most obvious tool for tamping down inflation — raising interest rates — risks throwing the economy back into recession. When Democrats tell voters they should stop whining about inflation, that such worries are imagined, they do themselves no favors either. They must head into the midterms with a clear-eyed view of the economy as it is, not as they wish it to be."

In his newsletter, Bloomberg's Noah Smith said "inflation is real," but it's the Federal reserve that needs to act — not the Biden administration.

"There’s a second, more reasonable Team Transitory, which makes a slightly different prediction: Inflation will fall, but only because the Fed takes action to bring it down," Smith said. “Tyler Cowen is on this second team. And for right now, I am too... In fact, it’s very important that the country as a whole agree with Tyler, because as long as people expect the Fed to tame inflation eventually, it won’t spiral out of control."

Smith also pondered whether Covid-19 relief has aided inflation. "The theory here is pretty simple, too — Covid relief put money in people’s pockets, and they spent that money, so prices went up," he wrote. "Inflation is global, of course, but most countries did quite a bit of Covid relief spending. Of course, we know another factor pushing up inflation, which is supply chain snarls. That’s a major negative shock to aggregate supply, which also tends to be inflationary. It’s hard to know which of these factors is contributing more to the inflation we’re seeing... So the real answer here is that we don’t know how much Covid relief spending has contributed to the rise in inflation."

In The New York Times, Paul Krugman said "history says don't panic about inflation."

"The closest parallel to 2021’s inflation is the first of these surges, the price spike from 1946 to 1948," Krugman wrote. "And here’s what you need to know about that 1946-48 inflation spike: It was a one-time event, not the start of a protracted wage-price spiral. And the biggest mistake policymakers made in response to that inflation surge was failing to appreciate its transitory nature: They were still fighting inflation even as inflation was ceasing to be a problem, and in so doing helped bring on the recession of 1948-49.

"About Wednesday’s price report: It looked very much like the classic story of inflation resulting from an overheated economy, in which too much money is chasing too few goods," Krugman wrote. "Earlier this year the rise in prices had a narrow base, being driven largely by food, energy, used cars and services like air travel that were rebounding from the pandemic. That’s less true now: It looks as if demand is outstripping supply across much of the economy... On the plus side, jobs have rarely been this plentiful for those who want them. And contrary to the cliché, current inflation isn’t falling most heavily on the poor: Wage increases have been especially rapid for the lowest-paid workers."

What the right is saying.

The right says Biden's legislative agenda is driving up inflation, and he needs to pump the brakes before things get worse.

In Bloomberg, Ramesh Ponnuru said "Americans think the economy is bad because it actually is."

"Americans have, in fact, been pessimistic about the economy for most of the last two decades," Ponnuru said. "Gallup’s 'Economic Confidence Index' went negative after the dot-com boom went bust in 2000, and did not register sustained positive readings until the pre-pandemic part of President Donald Trump’s administration. It might, then, be more instructive to examine what our last two periods of widespread happiness about the economy — throughout 1998 to 2000, and from mid-2018 to early 2020 — had in common. Both were times when the standard of living for most people was rising, and had been rising for a while.

The public's unhappiness is "not irrational now, either," Ponnoru added. "Income fell in 2020 as the pandemic hit. Even if living standards were rising again, positive trends would have to continue before people began to register satisfaction. But living standards aren’t yet rising, anyway... As the economics researchers Jason Furman and Wilson Powell III pointed out in an analysis for the Petersen Institute, total compensation is 0.6% below its December 2019 level after adjusting for inflation. Irwin wrote that economists see rising wages and rising prices as 'two sides of the same coin.' For most people, though, the net effect in today’s economy is that the coins they are getting don’t go as far."

The Wall Street Journal editorial board said "one irony of inflation is that while it’s bad for working Americans, it’s great for the government."

"Tax revenues soar as nominal profits and incomes rise, and for evidence simply look at the boom in state and local government coffers," the board said. "Overall state and local government receipts including federal aid were 23% above pre-pandemic levels in the third quarter through September thanks to Congress’s gusher of spending and the strong economic recovery, according to the Committee for a Responsible Federal Budget. Property, corporate, sales and individual tax revenue from the third quarter of 2020 through the second quarter of this year is running 18.3% above the same period two years ago, according to Census Bureau data. How many Americans have seen their incomes rise that much over the last two years?

"Progressive states with higher tax rates are especially flush. State and local tax revenue in New York—which raised taxes on high earners this spring—is running $13.3 billion (21.3%) higher for the current fiscal year that began in April over the same period in 2019. Mind you, 2019 was a very good year for state coffers," the board said. "These rich states have also received plenty of welfare from Washington. Congress has given states and local governments $885 billion in direct aid through the various Covid bills for schools, public transit, Medicaid and more... If the Democrats’ $4 trillion spending bill passes, they’ll get even more. By our count, about $700 billion in the Democrats’ new spending bill would go to the states for programs such as child care, universal pre-K, home healthcare and housing."

The New York Post said the 'Build Back Better' plan would be "utter poison" for a struggling economy.

"Washington has already OK’d nearly $6 trillion for 'COVID-19 relief' since March 2020 — plus another $1.2 trillion just passed for infrastructure, all of it juicing demand. Generous handouts pushed by Dems, like unemployment bonuses, have made it easier for people to stay home from work, fueling a supply-chain crisis. And Biden’s anti-fossil-fuel policies have driven up energy costs," the Post editorial board said. "The result: The worst inflation in more than a generation, rapidly eroding Americans’ purchasing power. More unfilled jobs than people seeking work. Bare shelves and consumers unable to get goods they need. Heating costs that may prove crippling this winter. Slowing economic growth — pegged at an anemic 2 percent annual pace last quarter. And, of course, soaring national debt.

"Americans now face the grim prospect of ’70s stagflation: a lagging GDP coupled with runaway prices," they added. "Yet somehow Democrats think this would be a swell time for more inflationary spending, more handouts, more growth-strangling taxes, regulations and Green New Deal-style boondoggles. It’s sheer lunacy."

My take.

The bad news for Biden is getting worse.

In the last few weeks, the president passed a huge chunk of his legislative agenda (a popular chunk, at that), got China to issue a joint climate change pledge, saw another month of unemployment below 5%, watched his vaccine/testing mandate push vaccination rates up, and got something of a written commitment from moderates to push forward his $2 trillion social spending plan before the year is out.

Six months ago, one would have thought that nothing could’ve stopped that from being a great week for POTUS. But gains in realizing his vision have been overshadowed by these inflation numbers, the supply chain crisis, a crushing electoral loss in Virginia (and a near-loss in New Jersey), and increasingly dire approval ratings that have now hit their lowest levels of his presidency.

As I said a month ago, I’m really not qualified to opine on whether inflation is transitory or not — or what the biggest cause is. Economists seem to disagree and have a maddeningly muddied way of debating this stuff. But a month later, we're still talking about it, and it's still getting worse. Whether it's "transitory" or not is something that will have a much greater impact on how history describes this period of time than what it means for us. Transitory is a term describing whether inflation will exist for a year or multiple years or a decade. Inflation appears here for the near term-- at least the next six to twelve months, and there is currently no reason to believe it is going to go anywhere anytime soon unless several of the contributing factors simultaneously change course.

There's been a lot of derision aimed at the left-of-center corporate media for dismissing inflation concerns, and rightly so. Rising costs of fuel and eggs are a much bigger deal when you are living paycheck to paycheck or have no more than $500 in your savings account, which is probably true for anywhere from one in four to one half of all Americans. It's possible those Americans are still "coming out ahead" depending on the circumstances: As Rampell explained, inflation may have wiped out $1,000-$2,000 of a worker's wages in the last year, but that same worker could have gotten thousands of dollars through the child tax credit and $1,400 last spring from the latest stimulus check alone.

The catch, of course, is that government money could be propping up demand (or keeping people from working, though the data on that are not yet convincing) while those same workers struggle to make ends meet as prices keep rising, effectively taking away any positive perceptions of a humming economy when it’s harder to cover the rent each month.

What is clear to me is that Biden's Build Back Better plan is going to get a lot harder to pass with these numbers where they are. Some economists have argued convincingly that such a package wouldn't impact inflation nearly as much as monetary policy from The Fed, but it doesn't really matter if Biden can't convince moderates in the Senate and the House that it's a safe play economically and politically to push through another $2 trillion of spending. That prospect looks less and less likely by the day.

Don't forget...

Your questions, answered.

Q: You mention in this Durham article that the Trump campaign had issues as identified by the Mueller investigation.  What were those issues? I would also be resistant to an investigation if I was being investigated for something that I was not guilty of.

— Anonymous, San Ramon, California

Tangle: At some point soon, maybe when Durham is done with his inquiry, I'd like to re-visit the entire Trump-Russia story with all the information we have now and do a much more fleshed out look at this than what I'm about to say. But to answer your question, the "issues" I was referring to follow a few familiar storylines.

First, the Trump campaign basically held a senior staff meeting at Trump tower to meet a Russian lawyer who was promising to hand over dirt on Hillary Clinton (it turned into nothing, of course, except proof they were willing participants if the opportunity arose). Trump publicly asked "Russia" to find Hillary's 30,000 emails, and the same day (if the Senate intelligence committee is to be believed) Russian hackers went after her server. The Trump campaign hired Paul Manafort, one of the dirtiest political players in the book, and he eventually handed over internal polling and data to Konstantin Kilimnik, who has been accused of being a Russian intelligence asset (again, if you believe our own intelligence community).

A 1,000-page Senate report drafted by the Republican-controlled Senate intelligence committee detailed Russia's interference in the election, including its belief that members of the Trump campaign were easily manipulated, and that many on Trump's campaign were eager for help from people with ties to the Russian spy services (whether they knew it or not).

At the same time, Michael Flynn was having back channel meetings with Russia before Trump was in office, which, depending on who you ask, was either incredibly sketchy or boringly normal. In Mueller's report, he raised 10 instances where Trump may have obstructed justice, and about a half dozen of Trump's staff and aides lied to the FBI, to Congress or to the Department of Justice during the investigation into what happened. None of that looks particularly good.

So... yeah. Much about the Russia investigation was overblown, and the Steele dossier was (predictably) complete garbage, as I wrote last week. It also calls into question some of the tactics used by the Clinton campaign, who should not get a pass here either. But no, it wasn't all clean and above board in Trump’s campaign. I thought The Dispatch's Jonah Goldberg — who wrote a piece titled "In Defense of Both Sides—and Neither" — explained this beautifully.

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.

Nearly 40% of patients reported new or continuing symptoms of depression in the first year of the Covid-19 pandemic, according to a new study by Intermountain Healthcare. The study looked at 4,633 patients who completed standard primary care depression screening, and found that 4 in 10 reported symptoms of depression with worsened feelings than before the pandemic. The data was presented at the American Heart Association's virtual 2021 Scientific Session, which warned that increased depression could lead to heart issues. The odds of visiting the emergency room were 2.8 times greater for people with depression than those without, and the odds were 1.8 times greater for people with depression to go to the ER with anxiety and chest pains. Axios has the story.


  • 46%. The percentage of Americans who would back a generic Republican candidate for Congress if elections were held today.
  • 43%. The percentage of Americans who would back a generic Democratic candidate for Congress if elections were held today.
  • 51%. The percentage of registered voters who would back a generic Republican candidate for Congress if elections were held today.
  • 41%. The percentage of registered voters who would back a generic Democratic candidate for Congress if elections were held today.
  • $3.385. The average price per gallon of gasoline in the U.S. in October.
  • $2.972. The average price per gallon of gasoline in the U.S. in May, the last time it was below $3.

Have a nice day.

The largest ever study of psilocybin, the psychedelic compound in magic mushrooms, was completed on Tuesday, and the results say the drug is highly effective as a therapy for treatment-resistant depression. "Overall, 29.1% of patients in the highest-dose group were in remission three weeks after treatment, compared to 7.6% of those in the control group, and more than a quarter of the patients in the 25-milligram arm were still in remission three months after treatment," according to Stat News. The latest study comes as MDMA, the principal ingredient in ecstasy, is in Phase 3 trials and showing "astounding" results in eliminating PTSD in as many as two-thirds of trial participants. The trials are helping build momentum for drugs once shunned by the medical community as remarkably effective treatments for serious ailments millions of Americans suffer from.

❤️ Enjoy this newsletter?

📫 Forward this to a friend and let them know where they can subscribe (hint: it's here).

💵 Drop some love in our tip jar.

🎧 Rather listen? Check out our podcast here.

🛍 Love clothes, stickers and mugs? Go to our merch store!

🙏 Not subscribed? Take the next step and become a subscriber here.

Subscribe to Tangle

Join 100,000+ people getting Tangle directly to their inbox!