Enough with the inflation, thought Michel Goldman. It seemed like wherever he turned, people were hocking about rising prices. Yes, prices for everyday goods had risen sharply. But this was clearly a reflection of the world’s reopening post-corona. Soon things would settle down. Anyway, it’s not like the government and, especially, the Federal Reserve didn’t see the same numbers every guy on the street saw. Surely they’d tweak things as necessary to ensure inflation wouldn’t get out of control.

Is recent inflation a blip, or is something more ominous looming over the US economy?

The Great Inflation

In certain ways the inflationary period in the mid-1900s was more damaging than the Great Depression. The value of the dollar fell by over 60%, and households and individuals struggled to keep up. An ugly mix of factors including government overspending, skyrocketing energy costs, and errors by the officials deciding economic policy combined to unleash decades of monetary turmoil. Those who study economic history worry about runaway inflation as much as they do about a financial depression. Recent headlines about exploding costs in many sectors—from real estate to energy, car rentals to shipping pallets—has caused angst from Main Street to Wall Street.

Is It All COVID?

The Biden administration says that recent product shortages and price increases are all stemming from the aftermath of the coronavirus pandemic. Stimulus and deferred spending from a year of lockdowns mean there’s a lot of pent-up demand for goods and services. At the same time, there’s a backlog in production due to factories having extended furloughs to minimize the spread of the virus. The transport industry and labor market were also thrown out of whack. But as vaccination picks up and the world returns to normal, the imbalances of supply and demand will correct themselves. Then, prices will stop rising and fall to pre-corona levels, is the official line from the White House.

Flashing Red Signals

Due to infinite interlocking factors, it’s very difficult to precisely analyze and predict big-picture macroeconomics. Even top economists disagree about the causes and effects of past economic events, forget about agreeing on what will happen in the future. I would not venture to make any macroeconomic prediction with certainty. But studying the past does inform the future; patterns emerge and it’s possible to identify levels of risk. And I see many flashing red signals hinting at the possibility of a much deeper inflation problem than many may realize and Washington will admit.

Government-Created “Demand-Pull” Pressure

Inflation is influenced by some mixture of increased demand, constrained supply, and the government’s expansionary money distribution. While all three factors came into play for the coronavirus response, social, political, and economic factors seem to ensure these inflationary factors are far from over. Take the Biden administration’s push to spend trillions on “green” infrastructure and vastly expanded social programs. There’s also strong bipartisan interest in strengthening America’s stockpiles and manufacturing capabilities after the shortfalls in lifesaving equipment and drugs exposed national weakness. Regardless of the debatable merits of these campaigns, pushing vast sums of money, much of it created from thin air, into the economy adds inflationary pressure.

Government-Induced “Supply-Push” Constraints

All of that money being funneled into the economy increases demand for goods and services. At the same time, responding to social and political demands, the Biden administration is enacting policies that increase the costs of production. These proposed changes include raising the minimum wage, restricting the use of cheap fuels, increasing corporate taxes, requiring companies to source goods from American companies even if they are more expensive. All of these policies increase economic friction, which raises costs. And because America sets many global standards and practices, these economic frictions are spreading globally.

The Irony of Risk

Professor Nassim Taleb points out that, ironically, things that seem most risky are often the least dangerous, specifically because everyone is aware of the danger. Flying on September 12, 2001 may have seemed foolhardy, but due to the entire globe’s super-heightened attentiveness to the risk of a hijacking, it was actually a very safe time to fly! On the other hand, September 10, 2001 seemed to be very safe, but in reality, the nonchalance associated with flying on that day left commercial aircraft sitting ducks—which we only learned the next day.

Politicians Agree to Print Money

In the 1990s, after inflation was tamed in the US, politicians from both sides of the aisle took the country’s deficit and debt levels very seriously. After all, no one wanted to risk reigniting the inflationary beast. But today, most politicians and many economists have become complacent about it. Even Republicans have given up any semblance of fiscal restraint, as proven by their passing a massive tax cut under President Donald Trump, funded by debt expansion. Any efforts to restrain the Democrat’s spending agendas now rings hollow. And they are printing dollars with gusto and abandon. A financial September 11th looms when Washington least expects it.

A Biased Federal Reserve

The liberal movement is now deep in the belly of the Federal Reserve, the government agency charged with keeping inflation under control. Its chairman, Jerome Powell, says that full national employment is an insufficient reason to ease off the fiscal gas pedal. What about employment in specific racial groups? What about green climate targets? He telegraphed that the Fed is willing to tolerate sustained high inflation as long as it will remain in the vicinity of 2 percent on average. He is confident that the Fed can control inflation if it ever starts getting out of control. But for now, let inflation rip, he says.

When Liberal Economists Worry

Are current Federal Reserve officials smarter and more powerful than their predecessors from the 1960s and 1970s? They, too, thought they had inflation figured out and tamed. I sure hope Jerome Powell is right and inflation will ease soon. But even some liberal economists are concerned about the huge gamble Powell and the Biden administration are taking with the American economy. On May 24, Lawrence Summers, a top economist for the Clinton and Obama administrations, published a harsh op-ed in the Washington Post entitled “The Inflation Risk Is Real.” When even liberals fear that the country is overspending, it’s time to batten down the hatches.