NC Democrat/economist: What you really need to know about inflation

Inflation is at the top of most minds as we prepare to turn the calendar to 2022. But the discussion has dealt with the political ramifications, rather than a good-faith discussion of why we see inflation and how to address it.

As an economist and state representative, I wanted to share some insight. To be clear, under no circumstance is excessive inflation a desired outcome. It’s painful to deal with and increases economic anxiety. So, what we must consider is whether the decisions that lead us to this point put us in a better situation now than we would have been otherwise.

First, we need to understand inflation. It has two simple sources: supply and demand. Anytime demand outpaces supply prices increase. So, let’s go back to last year.

Around mid-March 2020, the global economy shut down. We faced a choice: do nothing and see a massive increase in unemployment and a catastrophic wave of financial defaults, or come together and pass an aid package to ensure Americans had the resources to make it through the pandemic. The decision was made, Democratic and Republican Congressional leaders passed the largest aid package in U.S. history. Democrats and Republicans chose not to leave fellow citizens behind and to help those that were going to be hit hardest.

As the Delta-variant rose, threatening our recovery, the government once again passed a historic rescue package. Unlike the 2020 packages, this one passed strictly on party lines, with Republicans suddenly unable to stomach any more spending, even as all the data suggested our economy was still in dire shape and our neighbors still needed help.

Simultaneously, something remarkable happened, a COVID vaccine that is 90% effective entered the market. As people got vaccinated, they returned to work, businesses reopened and the economy picked up steam. But this is where Inflation comes in.

Demand is based on a person’s ability to spend. The swift and necessary actions taken by Trump and Biden eased the pain initially felt by the numerous businesses that had to close and those who lost jobs, and the aid packages helped a great number of Americans stay afloat.

While unemployment understandably spiked, thankfully there wasn’t the same spike in evictions or defaults. Instead, while businesses took a larger hit, many Americans were able to get by until vaccines became available and the economy began reviving itself.

Supply is more complicated. Something as complex as the economy can’t shut down one day then pick back up where it left off the next. Just like starting your car in winter, the engine is cold and takes time to warm up.

While demand didn’t suffer as much as we initially feared because of the federal aid packages, supply hasn’t been able to catch up to the production levels we need. The good news? It’s getting there.

As businesses reopen and widespread vaccination allows many to return to work, there has been a shift back to pre-pandemic spending. But our economic engine isn’t fully heated back up yet and is causing our prices to rise.

Inflation is painful, but what we must ask ourselves is this level of inflation worse than what we would have experienced had we not acted the way that we did?

It’s easy and politically convenient to find someone to blame for inflation. Partisan finger-pointing may play well in the polls, but it doesn’t move us forward. Solving inflation involves a serious discussion about why it’s here and how best to deal with it.

What is clear is that without relief measures we wouldn’t be talking about inflation right now, but we would be struggling with near double-digit unemployment, people out of work, people forced out of their homes, and entire communities broken apart.

Many of us lost people we loved, and we all suffered, but there is no question that because the government acted the way that it did, we were able to save lives, save homes and save jobs, businesses, and the economy. We tackled that problem together and we need to do the same right now.

This story was originally published December 19, 2021 at 4:30 AM with the headline "NC Democrat/economist: What you really need to know about inflation."