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Memo to economists: inflation was caused by lockdown

Inflation has reached the highest level since 2008. A single tomato in this picture costs as much today as a second-hand Range Rover. Photographer: Angel Garcia/Bloomberg via Getty Images

November 23, 2021 - 7:00am

Financial journalists are in shock. They seem in awe of the return of inflation in 2021. The Financial Times runs a headline about “the unexpected surge in inflation” while The Economist informs us that the rise in inflation has “blindsided many economists”. Should readers be surprised by their surprise? Yes, they should.

Early on, economics students learn about the basic structure of the macroeconomy. On one side, students are told, is the supply capacity of the economy: the ‘supply side’. On the other, is the level of demand in the economy: the ‘demand side’.

You can think of the supply side as everything involved in the production and distribution of goods and services — from the factory to the transport grid to the supermarket. Conversely, you can think of the demand side as the amount of total spending in the economy at any given moment in time — that includes consumption spending by workers, government spending on goods and services and the purchase of new machines and buildings to create new factories and shops.

Inflation can occur in two ways. Firstly, demand can rise too high relative to supply. So, the government could ramp up spending massively — say, to fund a war — and the new spending could outstrip the capacity of the economy to deliver the goods. Prices would duly rise. Alternatively, supply could collapse. A drought in a poor country could wipe out half of the arable land for the year and there would be a food shortage. Again, prices would duly rise.

Consider what the lockdowns and vaccine mandates have done to the economy. On the one hand, they have interfered with the supply side. During social distancing, for example, pubs and restaurants could only operate at partial capacity; thus, they had to raise their prices to ensure continuous revenue. Vaccine mandates — even when only imposed at the company level — restrict the amount of people who can work in certain industries. This drives up wages and with them prices. One need not get into the chaos the public health measures have had on international shipping — restrictions have become so onerous that vessels find themselves keeping dead crewmates in freezers because they cannot bring the bodies through ports.

The lockdown has also juiced the demand side. The massive increases in government expenditure injected huge amounts of spending into the economy at the same time as supply was restricted. This has been exacerbated by governments all over the world then turning around – bizarrely – and deciding to engage in even more spending after the worst of the public health measures have been rescinded.

So, why are the financial journalists in a state of surprise? This is macroeconomics 101, after all. The blame lies at the feet of the economists. They are MIA. Ever since the pandemic began most of them have become armchair epidemiologists. They seem scared to point out any negatives associated with the public health measures. Given this silence, you cannot blame the financial journalists for being confused — after all, the experts are sitting on their hands.

If the inflation continues to build and the 2020s turn out to be a massive economic mess, the economists will have failed for the second time in two decades to highlight the key economic trend of the day — the first failure being their missing the housing bubble and financial crisis of 2008. At that point, either the profession should be reformed root and branch or the public should can finally be forgiven for having enough of the ‘experts’.


Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics

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Drahcir Nevarc
Drahcir Nevarc
2 years ago

I agree. I’m no economist, but could see this coming a mile off. It’s just basic logic.

Matt Hindman
Matt Hindman
2 years ago
Reply to  Drahcir Nevarc

“Don’t worry we can solve the inflation problem by just printing more money!”
Correct me if I’m wrong, but I pretty sure inflation does not work that way.

Galeti Tavas
Galeti Tavas
2 years ago
Reply to  Matt Hindman

The Inflation was 100% created to do two things – to spend Trillions (which ultimately went to the ultra wealthy and the top 1%), to increase the M2 supply by 30% in a year, and multi Trillions of Monetary stimulus so the very rich could double their wealth – as they did!

Then to create the Inflation to pay it off. ALL huge gov debt, from WWII and WWI and the Great Depression, say, have used inflation to erase the debt. That is how it workd. Gov prints trillions, spends it, this causes inflation, and thus the debt is inflated away. (Catch 22, and you are the pilot made to fly more missions, as you say you are crazy, so must be sane to know that, so a medical waver may not be issued.)

See – Inflation is a TAX on savings and income (as pay never can rise fast enough to pace inflation), and it is the most regressive tax of all as the wealthy have their money in appreciating assets so are unaffected – but you with your inflation of 6% and 0.02% interest on your savings are paying the inflation tax of – (Minus) 5.98%!!!!! In other-words, money is given out worth X, this devalues the money by inflation, so the debt is X-Inflation. At this rate your savings are GONE in 6 years – gone! Because the Central Banks are keeping interest at ZERO as well!

ALL THE CENTRAL BANKS said they were after inflation – they just lied about saying a goal of 2% when they wanted 10%, and soon will have it…..

This was NEVER about Health – it was to destroy the middle class and working class – any you sheep, you all chanted in support of it, clapping and cheering your own destruction! Wearing your masks as a symbol of your subservience to the Elite Masters.

Galeti Tavas
Galeti Tavas
2 years ago
Reply to  Drahcir Nevarc

This economist above is a young one who never learned of the past, he says:

“the economists will have failed for the second time in two decades to highlight the key economic trend of the day — the first failure being their missing the housing bubble and financial crisis of 2008.”

Well the 2000 Tech Bubble Crash was the first, and as huge, up to 90% stock prices collapse – the world came out of it very different. The 2008 (the GFC) one was the most important one though – as it gave us ‘Too Big To Fail’ and Quantitative Easing, which laid the groundwork to this current Monetary and Fiscal Disaster, which made the Global Economy into the ‘Dead Man Walking’ that it is today.

Paul Smithson
Paul Smithson
2 years ago

The economists have clearly gone to the same universities as the scientists and doctors who have been MIA for the last 18 months. These are people who no longer have the ability of free thought and critical thinking skills. They are simply woke virtue signallers who are incapable of raising their head above the parapet and having a viewpoint the differs even just one iota from the given narrative.

The economists, scientists, doctors, politicians, academics, et al, should hold their heads in shame.

Galeti Tavas
Galeti Tavas
2 years ago
Reply to  Paul Smithson

Fauchi’s Heavy hand has been on research for decades – as head of the NIH he gives out BILLIONS of research money. If you wish to have a research/University future you do research he wants – and only that.

THEN- even after, for the rest of your working life, you agree with what ever he says politically – or NO money for You in the future! He holds every scientist in USA at gunpoint – forcing them to all be yes-men! Go against the narriative and Fouchi is like Twitter and Youtube and Facebook – say something wrong – and you are GONE, done, canceled!

James Joyce
James Joyce
2 years ago
Reply to  Galeti Tavas

Fauci is a disgusting, woke fraud. Trump should have fired him immediately. He loves the cameras, and he loves killing puppies too, apparently.

James Joyce
James Joyce
2 years ago
Reply to  Paul Smithson

You are spot on, mate! ANY real poker player at any table in the world would be able to deal with how to act with imperfect and incomplete information than these highly credentialed boffin morons.
Some poker players are maths guys, some are highly educated, some are not but have street smarts and good instincts, but the skills that poker players have massively eclipses the boffins I’ve heard on The BBC and elsewhere. Nutters! They don’t know what they’re talking about!

James Joyce
James Joyce
2 years ago

The answer to the question posed is glaringly obvious: because the lion’s share of economists are at the uni, close to the uni, huge international bureaucracies such as the World Bank, or in government, also known as the Deep State. They are woke, global citizens, and disregard the data because it does not fit their woke agenda.
Perhaps the economists were not surprised–this is, after all, basic stuff. Perhaps they have deliberately distorted the data, as have the medical boffins who continue to lie about all things Corona to further their world citizen global agenda of government control of all freedoms. Look at Austria. I think they tried it once, last century. How did that end?

Galeti Tavas
Galeti Tavas
2 years ago
Reply to  James Joyce

NO, the economists know this. The FED (world.s main Central Bank) – this is from Their Web Site

“The Federal Reserve Board employs just over 400 Ph.D. economists, who represent an exceptionally diverse range of interests and specific areas of expertise. Board economists conduct cutting edge research, produce numerous working papers, and are among the leading contributors at professional meetings and in major journals. Our economists also produce a wide variety of economic analyses and forecasts for the Board of Governors and the Federal Open Market Committee.”

Some experts say the FED employees 900 Economists with PhDs!! And EVERY TIME- Every Time, in its history, the FED gets it wrong – which is very suspicious, as just flipping a coin if only 50% wrong….What they are up to is not what they should be up to.

Try Youtube Daniel Demartino-Booth, an ex-Fed economist, or Peter Schiff, Charlie Munger, Ray Dalio, Cambridge House, Stansbery Research, and on and on for videos on the economy….

Jasmine Birtles
Jasmine Birtles
2 years ago

Why no mention of Quantitative Easing here? That is the real problem. In my opinion, inflation has barely begun. The supply and demand issues are just the starter. See what kind of a main course they will be dishing up next year as all the extra money fans the flames.

David Giles
David Giles
2 years ago

QE funded the massive public spending. It will need to be unwound, although there are plenty of economic bloggers and tax campaigners who will say otherwise.

Galeti Tavas
Galeti Tavas
2 years ago

QE is Monetary Stimulus, and unless it is Monitized to Cash and so becomes ‘Fiscal stimulus’ by the Fed QE does not create inflation, just asset inflation as basically it is bank reserves, not money into the economy. It does keep Interest at Zero though – and that kills the savings, which really is evil.

The problem is it VASTLY distorts the economy. One huge thing – it keeps Zombie Companies walking – and the Buying of $40 Billion of Mortgage Securities a month directly inflates real-estate so adds to rent and house inflation – it all is a hug mess!

Pil Grim
Pil Grim
2 years ago

The 2020s are going to be a wild ride…

Liz Walsh
Liz Walsh
2 years ago

Money can get you through times of no health, but health can’t get you through times of no money.

Rickard Gardell
Rickard Gardell
2 years ago

Agree 100%. If I get another epidemic advice from an economist, I go nuts. They don’t understand the fundamentals of their “core business”, so they head off into unchartered medical territory…?? Not sure we need them anyway.

Galeti Tavas
Galeti Tavas
2 years ago

They did as they were told, same as the scientists – they did as told, not as they thought.

Galeti Tavas
Galeti Tavas
2 years ago

Maybe it is time to get some fringe economist to explain things…..The people Unherd gets are deer in headlights staring at the oncoming truck but not ‘getting it’….

Peter Whitehead
Peter Whitehead
2 years ago

I am not an economist but I’ve lived through trying to set up a small business in the late 70’s and early 1980’s when inflation was running around 20% and interest rates often higher (no good if you don’t have savings but only a bank overdraft! ).
I was saying 12 months ago, to anyone that would listen, that we would inevitably go into hyper inflation. So far it’s not really hyper. Let’s hope I’m wrong and stays that way.
It’s another great example of “experts” being wrong again.

GA Woolley
GA Woolley
2 years ago

No, inflation was caused by the pandemic. There’s the simplistic assumption that without a lockdown life, and the economy, would just have gone on more or less normally. In a densely populated country like the UK, it certainly wouldn’t have. Just imagine the 1st wave of Covid ripping through the country; sickness, mass absenteeism, people afraid to travel, intensive care overwhelmed, a surge in deaths, businesses closed or collapsed, and panic. The effects on the economy would have been worse than lockdown, because there was no plan for it. The opposition to lockdown is because ‘the government’, the ‘police state’, ‘our masters’, imposed it, not because there was any rational alternative.

Galeti Tavas
Galeti Tavas
2 years ago
Reply to  GA Woolley

NO! Look at Sweden and South Dakota, NO Lock down, best results of anyone, look at Florida, at Alabama, Mississippi, Louisiana, Texas, Barely any lockdown, best results, look at how cases are higher the higher the vaccine rate is. Look at Israel, UK, highest vaccine numbers, highest covid cases after vaxing, look at the world shattered economy – look at the millions of third world starving children from lockdown – do not be so selfish.

Edward De Beukelaer
Edward De Beukelaer
2 years ago
Reply to  GA Woolley

Dear Wooley, your argument is only true if you believe that nearly all people would develop corona virus symptoms and a large part would end up in hospital. A Canadian study showed that only anything between 8 -13 % of people will be/are susceptible to any new variant of corona virus, of which a small number would be ill at home and a smaller number end up in hospital (because the government waits to treat people until they are in intensive care… a bit late) This data sort of confirms what was already known about how epidemics tend to behave (https://www.questioneverything.io/)
Scaring people of corona was a tactic to control people (dictator tactics). A brave government basing its decisions on sound multidisciplinary scientific discussion (not vested interests) would have been brave and explained people what to expect and guide them. Note that fear is a good cause for developing illness related to viruses, hence aggravating the risks. and we can go on and on.