Inflation causes poverty, and the poor have no defense.  Kamala Harris said inflation was caused by the COVID crisis.  More recently, she said it is caused by greedy retailers.  No, Kamala — it was caused by you and Joe, and no one else.

We are letting her off the hook for two reasons: by allowing the use of a bogus inflation chart and by blaming the money supply rather than her as the direct cause of inflation.

In their first week in January 2021, Joe and Kamala cut off every source of oil within their jurisdiction.  In the very next month, three things happened: our domestic production of oil plunged from 13.1 million barrels per day to 9.7, oil prices doubled from $55 to $110 per barrel, and the monthly inflation rate leaped from 1.4 percent to 9.6 percent.

The red-herring inflation chart they offer shows inflation peaking six months later, which distracts from the fact that their action was the sole cause of inflation.  It is a “trailing average” chart.  It takes the 9.6-percent monthly rate and averages it with the previous 11 months, which averaged 1.8 percent, and so on.  Thus, the peak of inflation appears to happen six months after it actually peaked.  A monthly chart would show the truth: that the reduction of oil supply was the direct cause of inflation.  Knowing that leads us to the cure for inflation, which you will read below.

My first economic essay in 1978–80 concluded that it was not the money supply that caused that 15-percent inflation; it was rising oil prices.  In 1970, a barrel of oil cost a low of $1.20.  As a result of three enormous tax increases, oil leaped to $37 by 1980.  In the late 1970s, OPEC added an average $6.00 tax in 1976, then an $8.00 tax, taking the price to about $13.00, and the windfall profits tax sent it to $37.00 in 1980, the year the tax took effect.  A tax on profits adds leverage to price increases.

Inflation accelerated from 5 percent in 1975 to 14 percent in 1980.  President Ford vetoed all 63 spending bills during his tenure, and it became evident that inflation was following the price of oil and not government spending or the money supply.  Spending creates other problems.

During Obama’s tenure, we have the same proof.  For 13 years, from 2008 through 2020, inflation averaged only 1.8 percent.

In his first 90 days in 2009, Obama spent $787 billion on the stimulus, plus the remaining TARP money of $370 billion.  He followed that with continuing resolutions of $813 billion in stimulus each year and four years of Q.E. spending of $200 billion each.

That was our nation’s largest increase in spending and money supply in history — yet inflation did not budge.  That is undeniable proof that the money supply and government spending did not cause our inflation.

A woman does not offer $4 for bread when the price is $3 simply because the money supply is large.  If there is a shortage of bread, she might bid up the price.  Monetarists are correct: raising interest rates to choke the money supply and crush the economy will eventually work, but that is like choking the patient rather than treating the ailment.  That money-supply groupthink started in 1980.

Milton Friedman urged Jimmy Carter not to impose a windfall profits tax and said twice, publicly, that Carter would not do so.  When Carter changed his mind and defied the advice, only then did Friedman decide that raising interest rates to shutter the economy was the last resort.  It had been the price of oil that drove inflation.  Friedman knew that, so he tried to mitigate that first.  Raising interest rates was also a tough sell.  He said a lot of things to make it happen, but that seems to be the only thing groupthinkers remember.

Why do oil prices drive inflation?  There are 14 derivatives from each barrel of oil.  Around the turn of the last century, Lyman Stuart, the founder and owner of Union Oil, defied his own board of directors to pour profits into inventions of useful products created by his petro-chemical engineers.  This grew to an enormous city-block laboratory in Brea, California, where his engineers used those derivatives by means of catalytic cracking and distillate testing to create products that we buy and use every day.  By 1955, they had created about 5,000 useful products, all derived from each barrel of oil.  Today, that number is about 6,000 products from oil.

When the oil cost rises, the prices of 6,000 products are affected.  Anyone with an economic brainstem should recognize that this is a causal relationship.

So what is the cure for inflation?  Our oil companies, in their never-ending effort to attain required supply, have restarted “shut-in” wells to recover the lost production.  Shut-in wells are too costly to operate for a number of reasons, such as no pipeline or rail access, etc.  So our production is back up, but at a higher cost.  Trump is correct: he can end inflation by restarting our less costly wells that Biden and Harris have shut down.  

Prior to the three years of inflation from 1978 to 1980, women did not have to work.  Afterward, they had to work.  The damage from inflation never goes away.  It is far more damaging than any recession.

Inflation causes poverty because it raises the cost of usable goods.  It affects the poor first, and they have no defense.  Kamala and her net-zero carbon policy are causing poverty.

The Fed did not cause inflation.  Twice now, that groupthink has been proven wrong.  We let Harris off the hook by falsely blaming the money supply for inflation.  She caused the inflation, not the Fed.

James T. Moodey is a retired entrepreneur (weights and measures testing), author, and economic essayist.  His most recent book, The Ladder Out of Poverty, successfully determined why the poverty rate has not declined since the Great Society promised to end poverty.

Image: lalabell68 via Pixabay, Pixabay License.