This article was originally published by Jon Militimore at The Foundation for Economic Education. 

Managing unemployment might be the stated reason for inflationary policy, but the actual reason seems to be something else.

President Joe Biden’s approval rating is tanking, and he’s now trailing former President Donald Trump in national polls, as well as in some key swing states.

Vox blames the economy for Biden’s plunging popularity — or at least voters’ perception of the economy. A new Gallup poll shows that just 32% of people approve of Biden’s handling of the economy.

To combat the narrative that Biden’s policies are to blame, the White House has gone on the offensive, attacking billionaires and blaming corporations for the economic pain the public is experiencing.

“Let me be clear to any corporation that hasn’t brought their prices back down even as inflation has come down: It’s time to stop the price gouging,” Biden tweeted. “Give American consumers a break.”

It’s a strange line of attack for several reasons, but the most glaring one is that it’s entirely devoid of economic sense, something University of Michigan economics professor Justin Wolfers observed on X.

“This is not only incoherent; it’s unhelpful,” Wolfers, a senior fellow at the left-leaning Brookings Institution, said of Biden’s tweet. “It’s incoherent because lower inflation is cause for firms to moderate their price hikes, rather than cut prices. It’s unhelpful because the only path back to earlier price levels is deflation, which comes with massive economic pain.”

This is not only incoherent, it's unhelpful.

It's incoherent because lower inflation is cause for firms to moderate their price hikes, rather than cut prices.

It's unhelpful because the only path back to earlier price levels is deflation, which comes with massive economic pain. https://t.co/FsY12WS20f

— Justin Wolfers (@JustinWolfers) November 30, 2023

Melissa S. Kearney, an economics professor at the University of Maryland, responded with a face-palm emoji.

“I’m guessing the economists weren’t consulted on this one,” Kearney deadpanned.

The obvious fact the Biden White House missed is that while inflation might be slowing, it’s still positive, which means prices are still increasing — and at a clip much faster than the Federal Reserve’s target of 2%. Those companies would cut prices amid a general rise in consumer prices defies economic sense.

A second problem with Biden’s tweet is that he points the finger at companies for inflation that stems from the government’s policies. In one of his most famous lectures, the Austrian economist Ludwig von Mises pointed out that inflation is just that: a policy.

And if we look at recent U.S. monetary policy, it’s clear why people are suffering from inflation.

Over a four-year period, the Fed increased the M2 money supply from $14 trillion to $22 trillion at its height in the summer of 2022, an increase of more than 50% in just four years.

The M2 money supply has fallen slightly, to $21 trillion, due to tighter Fed policy, but it is still significantly above pre-pandemic levels.

This is the cause of price inflation, and one need only look at the Fed’s description of what causes inflation to confirm this.

“Inflation is caused when the money supply in an economy grows at a faster rate than the economy’s ability to produce goods and services,” the Federal Reserve Bank of St. Louis states on its “ Money and Inflation ” resource page.

The obvious question is: If printing money causes inflation, why are we doing it?

The Fed has long claimed that inflation is just the price we must pay to keep unemployment low, but using monetary policy to fight unemployment has always been problematic. It’s true that there is, generally, an inverse relationship between unemployment and inflation, as demonstrated by the Phillips curve. When inflation rises, unemployment falls and vice versa — at first.

This relationship weakens over time, however, which is why some astute economists, including the Nobel Prize-winner F. A. Hayek believed that using monetary policy to curb unemployment would inevitably result in higher and higher inflation, as central banks would have to print more and more money to maintain low unemployment.

We’ve seen this phenomenon play out in numerous countries in recent history, including Argentina, where inflation is above 140%. Despite Argentina’s high inflation, its unemployment rate has averaged about 8.5% over the last decade. In other words, Argentina has high inflation and high unemployment, just as the United States did in the 1970s.

Managing unemployment might be the stated reason for inflationary policy, but the actual reason seems to be something else: It facilitates government spending. As the Nobel Prize-winning economist Milton Friedman and others have pointed out, inflation is a tax.

Taxes are what facilitate government spending, and once one grasps that inflation is a tax, the inflation picture becomes clear. Inflation is caused by expanding the money supply, but the impetus behind the money printing is government spending.

Politicians can’t admit this, of course. So they concoct ridiculous economic arguments that blame companies for the very inflation their policies cause.