Will We Ever See 2 Inflation Again? Exploring the Causes and Solutions

There is an ongoing discussion about the possibility of seeing inflation rates similar to those in the 1970s (nicknamed '2 inflation'). To understand this notion, we must first delve into the dynamics of the business cycle and the factors that contribute to inflation.

The Business Cycle: A Dynamic Economy

The economy is indeed a dynamic system with various phases, including growth, peak, recession, and recovery. One of the most economical ways to gain insights into how the economy operates is through the study of the business cycle. As economies grow, they can experience peaks where growth slows down, leading to recessions. Understanding this cycle is crucial as it helps us recognize the underlying factors contributing to economic fluctuations and, importantly, inflation.

Understanding Inflation: A Dependent on Money Supply

One of the primary causes of inflation is the increase in the money supply. This can be achieved through various means, such as purchasing government securities (often called 'printing money') or engaging in more subtle economic maneuvers. An often-overlooked method involves the government borrowing funds and distributing them to the population.

This distribution can manifest in various forms: unemployment checks, stimulus checks, PPP loans, healthcare services, and other government programs. During the pandemic, such monetary policies were implemented on a massive scale, leading to increased money supply and the subsequent rise in inflation.

The Pandemic and Impact on the Economy

During the pandemic, the government undertook extensive measures to support the economy and its citizens. One of the most notable actions was the provision of direct monetary aid, known as PPP loans (Paycheck Protection Program). These funds were intended to help small businesses maintain operations and retain workers. Additionally, various government programs provided free healthcare and suspension of evictions, among other benefits.

While some argue that a significant portion of these funds were not effectively utilized, it is essential to recognize the critical role these measures played in mitigating the economic downturn. In fact, many economists argue that the policies implemented by the Biden administration successfully navigated the country through a severe economic crisis, leading to a relatively robust post-pandemic economy.

Inflation as a Direct Result of Increased Money Supply

The increase in money supply, particularly through government spending during the pandemic, has had a direct impact on inflation rates. Various forms of aid and fiscal relief programs injected large amounts of money into the economy, leading to a situation where demand for goods and services outstripped supply, driving up prices.

Possible Solutions and Personal Responsibility

For those who feel particularly impacted by inflation and wish to mitigate its effects, there is a practical solution available. By calculating the total funds and benefits received during the pandemic and donating them to the Internal Revenue Service (IRS), interested individuals can contribute to reducing the national debt and decreasing the supply of money in public hands. This action would, in turn, help alleviate inflation.

However, it is also important to recognize that inflation is a complex issue influenced by a variety of factors beyond just government spending. While personal actions can contribute, broader systemic changes and government policies are crucial in addressing systemic economic challenges.

Ultimately, understanding the business cycle, the relationship between money supply and inflation, and taking personal actions where possible can help individuals and the broader economy navigate through periods of economic turmoil. It is through collective efforts and a nuanced understanding of economic principles that we can strive to achieve sustainable economic growth and stability.

By staying informed and actively participating in economic discussions, we can contribute to a more robust and resilient economy. If you have any further questions or would like to explore more about these topics, feel free to reach out for further discussion.