Economics: Would Trump II Bring More Inflation?

 (Drivebycuriosity) - The US election is approaching. President Biden`s chances to continue another period are falling apart. The Democrats are in panic. A group of 16 Nobel Prize winners, all Biden sympathizers, claims that Trump´s return to power would cause even more inflation ( cnn).

The image above shows the inflation over the last 10 years, which covers Trump`s and Biden`s presidentships so far (source ). During Trump´s regency the rate fluctuated between minus 0.2% (April 2015) and 2.9% (July 2018). During Biden`s regency inflation jumped up to 9.1% (June 2022) and is now hovering above 3%. Trump has certainly a much better inflation record.

But anyway, Joseph Stiglitz, a left-wing Columbia University professor, says that "Donald Trump will reignite this inflation, with his fiscally irresponsible budgets" ( cbsnews). The Biden supporters also claim that Trump will worsen the trade war with China and other nations and will hike tariffs on imported goods, which will raise the price level in the US. They also allege that Trump´s announced tax cuts will accelerate the economy and so strengthen inflation.

Higher tariffs are indeed bad for US consumers and lead to higher prices. But Biden isn`t a free trade supporter himself, he continues Trump´s economic war against other nations and made it even worse by executing new sanctions on China and oil suppliers Russia & Iran. And Trump´s budget policy and his tariffs did not push inflation above 3% and his regency ended with an inflation rate of 1.2%.

Apparently the Biden supporters ignore economic theory and history. “Inflation is always and everywhere a monetary phenomenon” said Milton Friedman. His insight is based on history.

 

                      Helicopter Money

The recent high inflation is caused by the Biden government who flooded the economy with stimulus checks in the value of trillions of dollars to fight the Covid19 recession (American Rescue Plan). The government checks got financed by massive bond purchases by the Federal Reserve (Quantitative Easing known as QE1,QE2 & QE3).  

The government money landed directly on the bank accounts of the Americans, blowing up the money volume M2 (bank notes & coins & deposits at banks). Milton Friedman described this as helicopter money (cato ).

 

 ( source)

As a result in 2021 & 2022 the US money supply M2, the engine of the inflation, jumped 40% (image above). The money deluge met a constrained supply of goods & services partly - because of Covid19. "Inflation is caused by too much money chasing too few goods and services", noticed the economists at fisherinvestments".

 

                        Causal connection

The causal connection between money and inflation is known since the 16th century at least. Nicolaus Copernicus described already in the year 1522 how "too much money" causes inflation. Copernicus` "quantity theory of money" is based on observations: 

Early in the 16th century Spain conquered today`s Latin America and looted the silver stocks. The Spaniards send the precious metal to Europe where is was printed into coins and used as money.

As a result the European money supply jumped, meeting a restrained supply of goods (agriculture, hand works) &  services. The flood of money raised suddenly the demand for scarce goods & services and caused a jump of the price level.

Elaborated studies by Milton Friedman, Karl Brunner, Allan Meltzer and many other economists (known as Monetarists) described already in the 1960s how and why the inflation rate follows the growth rate of money with a time lag (causal connection).

Nobel Prize or not, the Trump inflation claim is based on economic illiteracy.