Two facts are clear about U.S. economics and politics in the post-COVID era. First, inflation spiked in the years 2021-23, leaving consumer prices substantially higher than before. Second, Joe Biden was blamed for inflation by a majority of voters, who were prepared to vote against him had he stayed in the race and then mostly did vote against the Democrats’ new candidate, Kamala Harris, in the 2024 presidential election.

To what extent was Biden responsible for the high inflation of 2021-23? Incumbent parties across the industrialized world have been blamed by voters for COVID-era inflation, fairly or not—just as voters held Gerald Ford (in 1976) and especially Jimmy Carter (in 1980) responsible for the high inflation of that time, even though much of it originated with OPEC oil price increases. But this time around, what portion, if any, of the blame is justified?

A Brief Primer on Inflation

What causes inflation? Economists mostly point to two forces: too much aggregate demand, or spending, and “shocks” to supply, either in specific sectors or more broadly, which cause the costs of producing goods and services, and therefore product prices, to rise.

Aggregate demand is fueled by a government’s fiscal policy, meaning its spending and taxes; large fiscal deficits, caused by spending in excess of tax revenue, can lead to too much private demand and therefore inflation. Aggregate demand is also driven by monetary policy, which is set by the Federal Reserve through its control over short-term interest rates. More specifically, the Fed can lower short-term interest rates to stimulate economic demand or raise them to contract it. As the Fed operates independently of the President and Congress, it is clear that the latter have limited control of demand-side policy. Of course, if consumers or private businesses shift their spending patterns on their own in an inflationary way, neither the President and Congress nor the Fed would be directly responsible—though their fiscal and monetary adjustments in response can matter a lot.

In contrast, supply shocks happen when significant spikes in costs and prices occur in specific goods or services—like food, energy, or housing—or more broadly. Since food and energy prices are volatile, economists often focus on “core” inflation rates that exclude them. Rising labor costs are one important kind of supply shock that fuels core inflation and causes price inflation at a broader level. Labor costs can be driven not only by tight labor markets but also by workers trying to keep pace with price increases, especially if they expect such increases to continue.

Any of the above factors can be responsible for initiating or sustaining a round of inflationary price increases. Progressives tend to emphasize supply shocks, rather than excess demand, when explaining the inflation of the 1970s as well as that of the early 2020s, since they generally support expansionary policies to achieve full employment and often criticize efforts to contract demand. But this perspective masks an important point emphasized by conservatives and first made decades ago by Milton Friedman: Specific or broad supply shocks can lead to sustained inflation only if fiscal or monetary policy accommodates those shocks, allowing consumers to spend more without cutting back on the quantities of goods and services that they buy. To this point, liberal (or Keynesian) economists often reply that, without such accommodation, consumers would buy less, perhaps resulting in a recession. These tradeoffs can be unforgiving in the short term.

Nevertheless, inflation in the United States was relatively stable over the 40-year period from the 1980s to the early 2020s. The Federal Reserve enforced strict monetary discipline (with somewhat less fiscal discipline by Congress and presidents in the early 1980s and after 2000), and both labor and commodity cost increases remained muted. Though we suffered periodic recessions, and an especially severe one in 2008-09, we had achieved price stability, which was baked into workers’ and businesses’ expectations and their actions on wages and prices over time.

So What Actually Happened Post-COVID?

While inflation dipped in 2020, as much of the U.S. economy shut down to fight the pandemic, it began rising in 2021. It ultimately peaked in mid-2022 at 9.1 percent, as measured by the Consumer Price Index, before declining after that.

What happened? Both aggregate demand and supply played important roles.

Supply shocks began to emerge as supply chains became clogged in 2021, with ports snarled around the world and production that had been shut down because of the pandemic now lagging behind consumer demand for a range of products (e.g., new and used motor vehicles). Eventually the supply chains adjusted, and ports became unclogged while factories caught up with orders. But a second round of shocks occurred in early 2022 due to the Russian invasion of Ukraine, which roiled both food and energy markets and led to spiking costs for these commodities.

At the same time, aggregate demand underwent some important changes as well. Fiscal policy was extremely expansive: The federal government spent nearly $3.5 trillion on relief during 2020 to keep consumers and businesses afloat during the economic shutdown. Money poured into everything from household relief checks to business supports to food stamps, Medicaid, and unemployment insurance for the disadvantaged and unemployed workers.

While such spending initially was bipartisan, an additional package of nearly $2 trillion in further relief was passed by a Democratic Congress with little Republican support in March 2021 and signed into law by President Biden. Though the economy had been steadily recovering since mid-2020, many economists feared that another economic downturn could occur if COVID illnesses surged again—especially if that happened before vaccines were widely available—and another relief package seemed like anti-recession insurance. At the same time, monetary policy also remained very expansionary from early 2020 into mid-2022, as the Fed kept short-term interest rates near zero.

But consumer spending patterns were not driven only by federal policy; some important shifts occurred on their own. First, in 2020 and early 2021, consumers who still feared COVID spent considerably less on services, which often require visits to places like restaurants, nail salons, and health clubs. Instead, they began to purchase durable goods in large quantities, which put further pressure on supply chains and product prices. Second, many Americans began to demand larger homes, since remote work among adults and remote schooling among children put more strain on the limited household spaces that had seemed sufficient before the pandemic.

The fact that many consumers were sitting on thick cushions of unexpected savings, built up from a combination of federal relief packages and reduced spending during the pandemic, enabled them to crank up spending in 2021. In fact, consumer expenditures rose by nearly 10 percent over the first two quarters, while total spending more than surpassed its pre-pandemic trend.

While consumers were now eager to buy many goods and services, workers were not so keen on producing them. Some who had been deemed “essential” workers during the pandemic were burnt out and annoyed at the risks they were required to take. Others, especially older workers, feared becoming ill when they were asked to return to work. And some mothers of young children found that they needed (or preferred) to stay home with remote schoolers. Immigration had declined during the Trump years and especially in 2020, further decreasing the size of the workforce, and native-born workers still enjoyed generous unemployment insurance in most states, on top of their ample savings.

What resulted was an economy-wide labor shortage, reflecting fewer workers in the labor force and a greater reluctance of those still in the market to accept lower wages and benefits. Some analysts called this the “Great Resignation.” As a result, wages rose handsomely, especially among those with the lowest earning levels. Of course, price inflation was high as well in this period, and the spike in inflation of 2021 fed wage demands in 2022.

Eventually, the Fed began to tighten the money supply and raise short-term interest rates. The elevated levels of federal spending began dissipating in 2022 and even more in 2023. Immigrants returned to the United States in large numbers, while mothers returned to work as well. As workers’ savings dropped, and as their expectations of inflation diminished, they further reduced their wage demands.

By late 2023 and into 2024, inflation rates were trending toward the Fed’s desired level of 2 percent. The recession that many economists feared was needed to lower inflation did not materialize, and unemployment rose just marginally (to about 4 percent) while payrolls and wages continued to grow. The Fed’s adroit managing of monetary policy was praised, while fiscal policy had at least modestly moved in the right direction.

On the other hand, consumer price levels remained about 20 percent higher than they had been just three years before, and housing prices had grown by even more, dashing many young adults’ hopes for homeownership anytime soon. Though wages had risen by even more than prices—a fact that progressive economist Paul Krugman frequently pointed out—too many Americans who didn’t work at all or didn’t work full-time (about half of the adult population) found their incomes trailing the higher prices they faced. And anyone taking on new debt suddenly faced much higher interest payments than Americans had seen in decades.

Eventually, a grumpy electorate turned on Kamala Harris, who lost every swing state to a resurgent Donald Trump in the 2024 election. While a range of factors played into the election results—including concerns over immigration, crime, race/gender politics, and Harris’s leadership—the high inflation of 2021-23 appeared to be the primary cause of her loss, outweighing any worries voters had about Trump’s chaotic (and lawless) past and likely future behaviors. In fact, his extreme proposals for tax cuts, tariff increases, and immigrant deportations could all revive serious inflation, but voters stressed positive memories of their personal financial experience under him (before COVID) more than various abstract risks that could arise from his future actions.

Was It Biden’s Fault?

Given the many factors driving inflation, was it fair to blame Biden for its spike?

A number of economists have tried to figure out the relative roles of aggregate demand and supply shock forces in the inflation of 2021-23. Prominent economists Ben Bernanke and Olivier Blanchard argue that a combination of specific sectoral price shocks and strong aggregate demand eventually led to broader wage (as well as price) growth in a tight labor market; in other words, both demand and supply factors mattered importantly in raising inflation, suggesting Biden’s stimulation of demand played some role.

But Obama Administration economist Peter Orszag and his co-authors attribute most of the inflation to supply chain issues, with smaller roles played by tight labor markets, oil prices, and expected future inflation. What’s more, the fact that our inflation experience was similar to that of every other industrialized country; that some of the excess demand was driven by the Fed and Trump relief packages from 2020 (and not just the 2021 Biden bill); and that consumer spending shifts from services to durable goods, including housing, were beyond anyone’s control all suggests that much of the inflation spike was inevitable, resulting from a perfect storm of demand and supply factors that mostly cannot be pinned on Biden.

At the same time, I feel that Biden and congressional Democrats deserve some blame. Though there was still some risk of recurring recession in 2021, the amount of fiscal stimulus they created seems hugely out of proportion to that risk, as Democratic economists Larry Summers and Jason Furman warned at the time. Specifically, a nearly $2 trillion stimulus package in an economy with GDP of about $23 trillion produced a fiscal boost of 8 to 9 percent (spread over a few years) plus additional (or “multiplier”) effects on spending, on top of monetary stimulus—which was all too much for an economy that was already recovering from the COVID recession. Democrats failed to consider the likelihood that, despite decades of price stability, enough demand and supply could cause an inflationary resurgence. As a result, they also failed to sufficiently weigh the dangers of over- relative to under-stimulation.

Too many Democrats, remembering Obama’s overly timid fiscal response to the Great Recession in 2009-10, now promised instead to “be bold” and thereby erred in the opposite direction. Their contribution to inflation might have, in fact, been modest; but had Biden’s entire “Build Back Better” agenda been passed and implemented, with only limited tax financing, the resulting inflation would likely have been worse (though the semiconductor, infrastructure, and green energy acts were good investments for the future).

And voters who are perhaps less schooled in the intricacies of macroeconomics saw trillions of dollars of federal spending in 2020-21 and then spiking inflation afterwards. They can be forgiven for believing that the former fully caused the latter, even if our economic analyses suggest a more nuanced story, and the Biden team should perhaps have considered that voters’ perceptions of trillions of dollars in new spending might not be completely positive.

Lessons for the Future

As Democrats try to recover from the debacle of 2024, an important lesson might be that their social and economic policy goals, however legitimate, must once again be carefully weighed against fiscal realities. America’s overall fiscal deficits are unsustainable over time, and hard choices will need to be made on Social Security, Medicare, and various kinds of discretionary spending—as well as taxes—if we want to avoid other inflationary spikes and stave off eventual default on our debts.

This will take two sensible parties, not one. Fiscal responsibility must be bipartisan to succeed, and the Republican obsession with tax cuts (mostly for the wealthy) needs to end. But in the meantime, Democrats should focus on some smaller but attainable goals—like helping non-college-educated workers get the skills needed for better jobs, reducing the local regulations that stifle housing construction and raise prices, and providing more child care and paid leave to working parents—while abandoning long programmatic wish lists funded by deficit spending alone.