Neither the excessive fiscal policy nor the Federal Reserve's monetary expansion led directly to increased prices.
In March 2020, ex-Fed member Kevin Warsh penned a piece for the Wall Street Journal, suggesting the Fed should provide "liquidity" to businesses struggling due to coronavirus-induced lockdowns started by panicking politicians. Warsh, surprisingly, didn't advocate for lifting these very lockdowns, leading to mass unemployment and skyrocketing poverty worldwide. Instead, he proposed more government spending—a tactic directly linked to our economic downfall, one Warsh strangely overlooks in his recent opinions.
Economically speaking, you can't halt economic activity for months on end, as was done globally in 2020, without feeling the consequences for years to come. Divide work among many hands and machines, and you'll experience falling prices. Break that cooperation for an extended period, like in 2020, and prices skyrocket for a long time. Warsh, however, has yet to acknowledge this basic economic fact quite directly. A few years later, Warsh mentions that lockdowns did not cause inflation, but then he contradicts himself by saying inflation emerged from over-spending and over-printing currency.
Government expenditure, on Warsh's own admission, depends on taxation. Citizens pay taxes, and governments spend those funds. Warsh states that reduced government spending would result in increased personal spending. However, he ignores the implication that government spending doesn't cause inflation, but rather a consequence of taxation.
"Printed money" is another false concern. If government ever contemplated money-printing to fund expenditures, Treasury yields would rise significantly beforehand, reflecting the potential impact. In actuality, the Fed has no power to guarantee stable, low prices. It can't even centrally control them. All prices are a result of sophisticated global cooperation, which we all witnessed in the lockdown era.
Warsh, as a Fed supporter, claims government spending causes inflation. Yet, he advocated for it in 2020 as a solution to the lockdown economy's devastation. The result? President Trump's approval for trillions worth of government spending, which financed nationwide lockdowns.
Warsh argues that the Fed can't blame inflation on Trump. Fair enough, as inflation and rising prices are not the same. Nonetheless, critical minds can blame Trump, Warsh's policy ally, for the higher prices resulting from lockdowns and government spending. Unfortunately, this result was completely avoidable and caused by a lack of reasonable judgment within our political system.
In Warsh's opinions, government spending causes inflation, yet he advocated strongly for it in 2020. His previously-voiced support for government spending may now be part of what he considers unjustified. In a way, he's criticizing his own stance from a few years back. If more politicians like Warsh exercised greater fiscal responsibility in recent years, we could have avoided many challenges associated with inflation.
In response to the economic impacts of the coronavirus pandemic, John Tamny, an analyst, disagreed with Warsh's proposal for increased government spending, arguing that such measures would exacerbate inflation. Despite Warsh's claim that lockdowns did not cause inflation, Kevin Warsh, the former Federal Reserve member, contradicted himself by acknowledging that over-spending and over-printing currency contributed to inflation.
