This is the Cato Daily Podcast for Friday, May 17th, 2024. I'm Caleb Brown.

Narratives surrounding the post-pandemic inflation need to confront a few pesky facts. the available now. So David, I don't know if you heard, but we've had some inflation recently, and there is still

this sort of lingering nagging competing set of ideas about precisely

what caused it. We've had a big spending government before and to I think the surprise of a lot of

economists we didn't see a lot of inflation

until 2021

and that was right in the wake

of one of the steepest, sharpest downturns in employment in American history

and also massive new spending.

So in relation to or trying to pin down causes of the inflation that we've seen over the last

couple of years, where should we begin?

Well, there are a number of factors that contributed to the inflation surge of 21, 22 that you're referencing

and we're still coming out on the other side of it, but the one that's probably not appreciated as much as it

should be is fiscal policy and a complementary role played by the Fed itself.

So clearly there were supply-side disturbances, the pandemic shut things down, that makes things

more scarce, more expensive, but on top of that the federal government added several

trillion dollars, and particularly the one they added in several trillion dollars in particularly the one they added in 2021.

So 2020 the economy shuts down the government keeps us alive barely with checks and we can debate that as well

but by 2021, the economy was getting close to full employment.

The whole economy was largely closed and then under ARP, President Biden added almost

2 trillion more dollars.

And the CBO at that time estimated it was only about a $600 billion hole.

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